VCA Inc.
VCA ANTECH INC (Form: 10-Q, Received: 11/08/2010 17:04:19)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-16783
 
VCA Antech, Inc.
(Exact name of registrant as specified in its charter)
     
Delaware   95-4097995
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
12401 West Olympic Boulevard
Los Angeles, California 90064-1022

(Address of principal executive offices)
(310) 571-6500
(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 o .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
             
     Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ .
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: common stock, $0.001 par value, 86,174,866 shares as of November 2, 2010.
 
 

 


 

VCA Antech, Inc. and Subsidiaries
Form 10-Q
September 30, 2010
Table of Contents
         
    Page
    Number
       
 
       
       
 
       
    1  
 
       
    2  
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    19  
 
       
    33  
 
       
    33  
 
       
       
 
       
    34  
 
       
    34  
 
       
    34  
 
       
    34  
 
       
    34  
 
       
    34  
 
       
    36  
 
       
    37  
  EX-10.1
  EX-10.2
  EX-10.3
  EX-10.4
  EX-10.5
  EX-31.1
  EX-31.2
  EX-32.1
  EX-101 INSTANCE DOCUMENT
  EX-101 SCHEMA DOCUMENT
  EX-101 CALCULATION LINKBASE DOCUMENT
  EX-101 LABELS LINKBASE DOCUMENT
  EX-101 PRESENTATION LINKBASE DOCUMENT
  EX-101 DEFINITION LINKBASE DOCUMENT

 


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VCA Antech, Inc. and Subsidiaries
Condensed, Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value)
                 
    September 30,     December 31,  
    2010     2009  
Assets
 
               
Current assets:
               
Cash and cash equivalents
  $ 132,233     $ 145,181  
Trade accounts receivable, less allowance for uncollectible accounts of $13,448 and $13,015 at September 30, 2010 and December 31, 2009, respectively
    51,606       49,186  
Inventory
    34,580       32,031  
Prepaid expense and other
    20,785       27,242  
Deferred income taxes
    19,445       18,318  
Prepaid income taxes
    15,598       6,252  
 
           
Total current assets
    274,247       278,210  
Property and equipment, less accumulated depreciation and amortization of $193,185 and $167,506 at September 30, 2010 and December 31, 2009, respectively
    324,222       289,415  
Goodwill
    1,074,316       985,674  
Other intangible assets, net
    45,854       44,280  
Notes receivable, net
    6,216       5,153  
Deferred financing costs, net
    6,689       581  
Other
    31,953       24,091  
 
           
Total assets
  $ 1,763,497     $ 1,627,404  
 
           
 
               
Liabilities and Equity
 
               
Current liabilities:
               
Current portion of long-term debt
  $ 28,202     $ 17,195  
Accounts payable
    28,464       28,326  
Accrued payroll and related liabilities
    39,873       33,539  
Other accrued liabilities
    50,959       43,298  
 
           
Total current liabilities
    147,498       122,358  
Long-term debt, less current portion
    502,177       527,860  
Deferred income taxes
    90,089       75,197  
Other liabilities
    29,307       10,651  
 
           
Total liabilities
    769,071       736,066  
 
               
Commitments and contingencies
               
Preferred stock, par value $0.001, 11,000 shares authorized, none outstanding
           
 
               
VCA Antech, Inc. stockholders’ equity:
               
Common stock, par value $0.001, 175,000 shares authorized, 86,087 and 85,584 shares outstanding as of September 30, 2010 and December 31, 2009, respectively
    86       86  
Additional paid-in capital
    344,895       335,114  
Accumulated earnings
    628,780       540,010  
Accumulated other comprehensive income (loss)
    347       (163 )
 
           
Total VCA Antech, Inc. stockholders’ equity
    974,108       875,047  
Noncontrolling interests
    20,318       16,291  
 
           
Total equity
    994,426       891,338  
 
           
Total liabilities and equity
  $ 1,763,497     $ 1,627,404  
 
           
The accompanying notes are an integral part of these condensed, consolidated financial statements.

1


Table of Contents

VCA Antech, Inc. and Subsidiaries
Condensed, Consolidated Income Statements
(Unaudited)
(In thousands, except per share amounts)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Revenue
  $ 358,703     $ 338,562     $ 1,043,356     $ 999,288  
Direct costs
    273,404       247,985       781,778       729,194  
 
                       
Gross profit
    85,299       90,577       261,578       270,094  
Selling, general and administrative expense
    27,105       24,695       94,290       70,553  
Net loss on sale of assets
    152       409       163       5,604  
 
                       
Operating income
    58,042       65,473       167,125       193,937  
Interest expense, net
    3,619       4,808       9,564       16,652  
Debt retirement costs
    2,550             2,550        
Other income
    (180 )     (1 )     (490 )     (131 )
 
                       
Income before provision for income taxes
    52,053       60,666       155,501       177,416  
Provision for income taxes
    23,466       23,180       63,465       68,081  
 
                       
Net income
    28,587       37,486       92,036       109,335  
Net income attributable to noncontrolling interests
    1,156       1,125       3,266       3,259  
 
                       
Net income attributable to VCA Antech, Inc
  $ 27,431     $ 36,361     $ 88,770     $ 106,076  
 
                       
 
                               
Basic earnings per share
  $ 0.32     $ 0.43     $ 1.03     $ 1.25  
 
                       
Diluted earnings per share
  $ 0.32     $ 0.42     $ 1.02     $ 1.23  
 
                       
 
                               
Weighted-average shares outstanding for basic earnings per share
    86,086       85,217       85,985       84,909  
 
                       
Weighted-average shares outstanding for diluted earnings per share
    86,964       86,431       86,998       85,893  
 
                       
The accompanying notes are an integral part of these condensed, consolidated financial statements.

2


Table of Contents

VCA Antech, Inc. and Subsidiaries
Condensed, Consolidated Statements of Equity
(Unaudited)
(In thousands)
                                                         
                                    Accumulated              
                    Additional             Other              
    Common Stock     Paid-In     Accumulated     Comprehensive     Noncontrolling        
    Shares     Amount     Capital     Earnings     (Loss) Income     Interests     Total  
Balances, December 31, 2008
    84,633     $ 85     $ 308,674     $ 408,582     $ (6,352 )   $ 12,846     $ 723,835  
Net income
                      106,076             3,259       109,335  
Foreign currency translation adjustment
                            592             592  
Unrealized gain on foreign currency, net of tax
                            288             288  
Unrealized loss on hedging instruments, net of tax
                            (801 )           (801 )
Losses on hedging instruments reclassified to income, net of tax
                            4,791             4,791  
Formation of noncontrolling interests
                                  3,440       3,440  
Distribution to noncontrolling interests
                                  (3,018 )     (3,018 )
Restricted stock unit grant
                1,941                           1,941  
Share-based compensation
                5,940                         5,940  
Issuance of common stock under stock incentive plans
    808             13,110                         13,110  
Stock repurchases
                (561 )                       (561 )
Tax benefit from stock options and awards
                1,445                         1,445  
 
                                         
Balances, September 30, 2009
    85,441     $ 85     $ 330,549     $ 514,658     $ (1,482 )   $ 16,527     $ 860,337  
 
                                         
 
                                                       
Balances, December 31, 2009
    85,584     $ 86     $ 335,114     $ 540,010     $ (163 )   $ 16,291     $ 891,338  
Net income
                      88,770             3,266       92,036  
Foreign currency translation adjustment
                            103             103  
Unrealized gain on foreign currency, net of tax
                            175             175  
Unrealized loss on hedging instruments, net of tax
                            (1 )           (1 )
Losses on hedging instruments reclassified to income, net of tax
                            233             233  
Formation of noncontrolling interests
                                  4,559       4,559  
Distribution to noncontrolling interests
                                  (3,314 )     (3,314 )
Purchase of noncontrolling interests
                                  (484 )     (484 )
Share-based compensation
                7,490                         7,490  
Issuance of common stock under stock incentive plans
    503             4,781                         4,781  
Stock repurchases
                (2,292 )                       (2,292 )
Tax benefit from stock options and awards
                370                         370  
Tax shortfall and other from stock options and awards
                (568 )                       (568 )
 
                                         
Balances, September 30, 2010
    86,087     $ 86     $ 344,895     $ 628,780     $ 347     $ 20,318     $ 994,426  
 
                                         
The accompanying notes are an integral part of these condensed, consolidated financial statements.

3


Table of Contents

VCA Antech, Inc. and Subsidiaries
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
                 
    Nine Months Ended  
    September 30,  
    2010     2009  
Cash flows from operating activities:
               
Net income
  $ 92,036     $ 109,335  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    33,387       28,986  
Amortization of debt issue costs
    461       363  
Provision for uncollectible accounts
    5,388       5,075  
Debt retirement costs
    2,550        
Net loss on sale of assets
    163       5,604  
Share-based compensation
    7,490       5,940  
Deferred income taxes
    10,992       16,057  
Excess tax benefit from exercise of stock options
    (370 )     (591 )
Other
    (550 )     (299 )
Changes in operating assets and liabilities:
               
Accounts receivable
    (7,533 )     (8,312 )
Inventory, prepaid expense and other assets
    (1,754 )     (7,820 )
Accounts payable and other accrued liabilities
    7,038       742  
Accrued payroll and related liabilities
    3,717       (4,339 )
Income taxes
    (9,545 )     5,580  
 
           
Net cash provided by operating activities
    143,470       156,321  
 
           
Cash flows from investing activities:
               
Business acquisitions, net of cash acquired
    (45,023 )     (51,853 )
Real estate acquired in connection with business acquisitions
    (5,834 )     (3,828 )
Property and equipment additions
    (47,675 )     (38,522 )
Proceeds from sale of assets
    15       123  
Other
    188       (440 )
 
           
Net cash used in investing activities
    (98,329 )     (94,520 )
 
           
Cash flows from financing activities:
               
Repayment of debt
    (548,560 )     (5,898 )
Proceeds from issuance of long-term debt
    500,000        
Payment of financing costs
    (9,112 )      
Distributions to noncontrolling interest partners
    (3,314 )     (3,018 )
Proceeds from issuance of common stock under stock option plans
    4,781       13,110  
Excess tax benefit from exercise of stock options
    370       591  
Stock repurchases
    (2,292 )     (561 )
 
           
Net cash (used in) provided by financing activities
    (58,127 )     4,224  
 
           
Effect of currency exchange rate changes on cash and cash equivalents
    38       17  
 
           
(Decrease) increase in cash and cash equivalents
    (12,948 )     66,042  
Cash and cash equivalents at beginning of period
    145,181       88,959  
 
           
Cash and cash equivalents at end of period
  $ 132,233     $ 155,001  
 
           
 
               
Supplemental disclosures of cash flow information:
               
Interest paid
  $ 9,207     $ 16,329  
Income taxes paid
  $ 62,018     $ 46,444  
 
               
Supplemental schedule of noncash investing and financing activities:
               
Detail of acquisitions:
               
Fair value of assets acquired
  $ 104,251     $ 72,303  
Cash paid for acquisitions
    (42,827 )     (48,042 )
Cash paid to bondholders
    (29,532 )      
Contingent consideration
    (259 )     (712 )
Noncash note conversion to equity interest in subsidiary
          (5,700 )
 
           
Liabilities assumed
  $ 31,633     $ 17,849  
 
           
The accompanying notes are an integral part of these condensed, consolidated financial statements.

4


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements
September 30, 2010
(Unaudited)
1. Nature of Operations
          Our company, VCA Antech, Inc. (“VCA”) is a Delaware corporation formed in 1986 and is based in Los Angeles, California. We are an animal healthcare company with three strategic segments: animal hospitals (“Animal Hospital”), veterinary diagnostic laboratories (“Laboratory”) and veterinary medical technology (“Medical Technology”).
          Our animal hospitals offer a full range of general medical and surgical services for companion animals. Our animal hospitals treat diseases and injuries, provide pharmaceutical products and perform a variety of pet-wellness programs, including health examinations, diagnostic testing, vaccinations, spaying, neutering and dental care. At September 30, 2010, we operated 523 animal hospitals throughout 40 states.
          We operate a full-service veterinary diagnostic laboratory network serving all 50 states and certain areas in Canada. Our laboratory network provides sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. At September 30, 2010, we operated 49 laboratories of various sizes located strategically throughout the United States and Canada.
          Our Medical Technology segment sells digital radiography and ultrasound imaging equipment, provides education and training on the use of that equipment, provides consulting and mobile imaging services, and sells software and ancillary services to the veterinary market.
2. Basis of Presentation
          Our accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements as permitted under applicable rules and regulations. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year ending December 31, 2010. For further information, refer to our consolidated financial statements and notes thereto included in our 2009 Annual Report on Form 10-K.
          Certain reclassifications have been made herein to 2009 amounts to conform to the current year presentation. For the three and nine months ended September 30, 2009, we reclassified certain business operations from our Medical Technology segment to our Laboratory segment to conform to the current year presentation; the reclassifications did not have a material impact on either of our segments.
          The preparation of our condensed, consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed, consolidated financial statements and notes thereto. Actual results could differ from those estimates.
3. Multiple-Deliverable Revenue Arrangements
          In October 2009, the FASB issued new accounting guidance related to multiple-deliverable revenue arrangements. The new guidance was designed to result in financial reporting that better reflects the underlying economics of multiple-deliverable transactions. We early adopted the new guidance on January 1, 2010, which resulted in the more timely recognition of revenue in our Medical Technology business segment. The early adoption resulted in the recognition of approximately $1.1 million and $3.1 million in incremental revenue for the three and nine months ended September, 2010, respectively, in comparison to the revenue that would have been recognized under previous accounting guidance.

5


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
3. Multiple-Deliverable Revenue Arrangements, continued
          Our Medical Technology business segment sells Digital Radiography (“DR”) imaging equipment to end users and to distributors in international markets which includes receptor plates, related computer equipment, software and additional related equipment, with one year of warranty support on the receptor plates and items related to the plates, and technical support on all software provided with the equipment. Distributors sell the DR products and warranties to the end customers and are responsible for all support provided directly to the end customer. The support that we provide to distributors is limited to the machines that are under a current support program and includes a level of warranty coordination, support and facilitation, including technical support related to the receptor plates, and receptor plate replacement during warranty repair ensuring limited down time to the end customer.
          Under the new accounting guidance, sales arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method, whereby any discount in the arrangement is allocated proportionally to each deliverable on the basis of each deliverable’s selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. For elements where VSOE is available, VSOE of fair value is based on the price for those products and services when sold separately by us or the price established by management with the relevant authority. TPE of selling price is the price of our, or any of our competitor’s, largely interchangeable products or services in stand-alone sales to similarly situated customers.
          We do not currently have VSOE for our DR imaging equipment as units are not sold on a stand-alone basis without the related support packages. As this is also true for our competitors, TPE of selling price is also unavailable. We therefore use the ESP to allocate the arrangement consideration related to our DR imaging equipment. Our ESP was based upon the actual selling price of our DR equipment bundled with our Sound Assurance warranty. We calculated the stand-alone selling price of the DR equipment using a cost plus margin approach. The stand-alone cost in most cases was determined using manufacturer data. The margin however was based upon the amount received on the actual sale of the bundled product, which does not differ materially from the margin exclusive of the post-contract customer support (“PCS”). By utilizing this cost plus actual margin method we were able to incorporate both our internal pricing strategies in addition to external market conditions.
          In domestic markets we have VSOE for our PCS as the support package is sold on a stand-alone basis. Our PCS agreements normally include a warranty on the receptor plate and technical support on the software elements. In foreign markets however, we do not have VSOE on the receptor plate warranties. Accordingly we use a similar cost plus margin approach to determine the ESP.
          The changes made under the new accounting guidance did not cause any changes in the units of accounting related to our arrangements.
          The new guidance resulted in a different allocation of revenue to the deliverables in the current fiscal year, which changed the pattern and timing of revenue recognition for these elements but did not change the total revenue to be recognized for the arrangement. Revenue and gross profit increased by approximately $1.1 million and $271,000, respectively, for the three months ending September 30, 2010 and by $3.1 million and $816,000, respectively, for the nine months ending September 30, 2010, primarily as a result of the acceleration of revenue related to the delivery of the equipment in international markets.
          We are not able to reasonably estimate the effect of adopting these standards on future financial periods as the impact will vary based on the nature and volume of new or materially modified arrangements in any given period.

6


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
4. Goodwill and Other Intangible Assets
      Goodwill
          Goodwill represents the excess of the aggregate of the consideration transferred, the fair value of any noncontrolling interest in the acquiree and for a business combination achieved in stages, the acquisition-date fair value of any previously held equity interest over the net of the fair value of identifiable assets acquired and liabilities assumed. The following table presents the changes in the carrying amount of our goodwill for the nine months ended September 30, 2010 (in thousands):
                                 
    Animal             Medical        
    Hospital     Laboratory     Technology     Total  
Balance as of December 31, 2009
  $ 861,868     $ 96,285     $ 27,521     $ 985,674  
Goodwill acquired
    83,505       7             83,512  
Goodwill related to noncontrolling interests
    3,237                   3,237  
Other (1)
    (756 )     507       2,142       1,893  
 
                       
Balance as of September 30, 2010
  $ 947,854     $ 96,799     $ 29,663     $ 1,074,316  
 
                       
 
(1)   Other includes purchase-price adjustments which consist primarily of an adjustment to the valuation of deferred tax assets, buy-outs, earn-out payments and foreign currency translation adjustments.
      Other Intangible Assets
          In addition to goodwill, we have amortizable intangible assets at September 30, 2010 and December 31, 2009 as follows (in thousands):
                                                 
    As of September 30, 2010     As of December 31, 2009  
    Gross             Net     Gross             Net  
    Carrying     Accumulated     Carrying     Carrying     Accumulated     Carrying  
    Amount     Amortization     Amount     Amount     Amortization     Amount  
Noncontractual customer relationships
  $ 45,537     $ (12,464 )   $ 33,073     $ 38,359     $ (8,077 )   $ 30,282  
Covenants not-to-compete
    14,039       (7,875 )     6,164       14,748       (7,785 )     6,963  
Favorable lease asset
    5,491       (2,524 )     2,967       5,406       (2,150 )     3,256  
Trademarks
    3,704       (852 )     2,852       3,362       (494 )     2,868  
Technology
    2,189       (1,414 )     775       2,209       (1,332 )     877  
Client lists
    35       (12 )     23       60       (26 )     34  
 
                                   
Total
  $ 70,995     $ (25,141 )   $ 45,854     $ 64,144     $ (19,864 )   $ 44,280  
 
                                   
          The following table summarizes our aggregate amortization expense related to other intangible assets (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Aggregate amortization expense
  $ 2,484     $ 2,013     $ 6,825     $ 5,643  
 
                       

7


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
4. Goodwill and Other Intangible Assets, continued
          The estimated amortization expense related to intangible assets for the remainder of 2010 and each of the succeeding years thereafter as of September 30, 2010 is as follows (in thousands):
         
Remainder of 2010
  $ 2,631  
2011
    9,809  
2012
    8,715  
2013
    6,504  
2014
    5,475  
Thereafter
    12,720  
 
     
Total
  $ 45,854  
 
     
5. Other Accrued Liabilities
          Other accrued liabilities consisted of the following (in thousands):
                 
    September 30,     December 31,  
    2010     2009  
Deferred revenue
  $ 9,397     $ 12,497  
Holdbacks
    3,236       1,640  
Accrued health insurance
    4,734       4,484  
Deferred rent
    3,326       2,989  
Accrued workers’ compensation insurance
    1,567       2,217  
Customer deposits
    3,019       3,783  
Other
    25,680       15,688  
 
           
 
  $ 50,959     $ 43,298  
 
           
6. Long-Term Obligations
          In August 2010, we entered into a new senior credit facility that provided $500.0 million of senior term notes and a $100.0 million revolving credit facility. The terms of the new senior credit facility are discussed in this footnote under Senior Credit Facility . The funds borrowed under the new senior term notes were used to retire our existing senior term notes in the principal amount of $505.4 million. In connection with the refinancing transactions, we wrote off previously deferred financing costs and paid financing costs. We incurred $9.4 million in debt retirement costs, of which approximately $2.6 million, or $1.6 million after tax were recognized as part of income from continuing operations and approximately $6.8 million were capitalized as deferred financing costs. Included in the $2.6 million of debt retirement costs included in income from continuing operations was approximately $232,000 in previously deferred financing costs that were written off as part of the transaction. The following table summarizes our long-term obligations at September 30, 2010 and December 31, 2009 (in thousands):
                 
    September 30,     December 31,  
    2010     2009  
Revolver
  $     $  
Senior term notes (LIBOR + 2.25%)
    500,000        
Senior term notes (LIBOR + 1.50%)
          516,889  
Other debt and capital lease obligations
    30,379       28,166  
 
           
Total debt obligations
    530,379       545,055  
Less — current portion
    (28,202 )     (17,195 )
 
           
 
  $ 502,177     $ 527,860  
 
           

8


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
6. Long-Term Obligations, continued
      Senior Credit Facility
          In August 2010 we entered into a new senior credit facility with various lenders for $600 million of senior secured credit facilities with Bank of America, N.A. as the syndication agent and Wells Fargo Bank, N.A. as the administrative agent. The senior credit facility includes $500 million of senior term notes and a $100 million revolving credit facility. The revolving credit facility allows us to borrow up to an aggregate principal amount of $100 million and may be used to borrow, on a same-day notice under a swing line, the lesser of $10 million or the aggregate unused amount of the revolving credit facility then in effect. At September 30, 2010 we had no borrowings outstanding under our revolving credit facility.
           Interest Rate. In general, borrowings under the senior term notes and the revolving credit facility bear interest, at our option, on either:
    the base rate (as defined below); or
 
    the adjusted Eurodollar rate (as defined below) plus a margin of 2.25% (Level III, see table below) per annum until the date of delivery of the compliance certificate and the financial statements for the period ending March 31, 2011, at which time the applicable margin will be determined by reference to the leverage ratio in effect from time to time as set forth in the following table:
                     
        Applicable Margin for   Applicable Revolving
Level   Leverage Ratio   Eurodollar Rate Loans   Commitment Fee %
I  
> 2.75:1.00
    2.75 %     0.50 %
II  
< 2.75:1.00 and > 2.25:1.00
    2.50 %     0.50 %
III  
< 2.25:1.00 and > 1.75:1.00
    2.25 %     0.50 %
IV  
< 1.75:1.00 and > 1.25:1.00
    2.00 %     0.50 %
V  
< 1.25:1.00
    1.75 %     0.375 %
          The base rate is a rate per annum equal to the greatest of Wells Fargo’s prime rate in effect on such day, the Federal funds effective rate in effect on such day plus 0.50% and the adjusted Eurodollar rate for a one-month interest period commencing on such day plus 1.0%. The adjusted Eurodollar rate is defined as the rate per annum obtained by dividing (1) the rate of interest offered to Wells Fargo on the London interbank market by (2) a percentage equal to 100% minus the stated maximum rate of all reserve requirements applicable to any member bank of the Federal Reserve System in respect of “Eurocurrency liabilities.”
           Maturity and Principal Payments . The senior term notes mature on August 19, 2015. Principal payments on the senior term notes are paid quarterly in the amount of $6.3 million for the first two years beginning on December 31, 2010, quarterly payments of $9.4 million for the two years following, and quarterly payments of $12.5 million for the three quarters prior to maturity at which time the remaining balance is due. The following table sets forth the remaining scheduled principal payments for our senior term notes (in thousands):
         
2010
  $ 6,250  
2011
    25,000  
2012
    28,125  
2013
    37,500  
2014
    40,625  
Thereafter
    362,500  
 
     
Total
  $ 500,000  
 
     

9


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
6. Long-Term Obligations, continued
          The revolving credit facility matures on August 19, 2015. Principal payments on the revolving credit facility are made at our discretion with the entire unpaid amount due at maturity.
           Guarantees and Security. We and each of our wholly-owned subsidiaries guarantee the outstanding debt under the senior credit facility. These borrowings, along with the guarantees of the subsidiaries, are further secured by substantially all of our consolidated assets. In addition, these borrowings are secured by a pledge of substantially all of the capital stock, or similar equity interests, of our wholly-owned subsidiaries.
           Debt Covenants. The senior credit facility contains certain financial covenants pertaining to fixed charge coverage and leverage ratios. In addition, the senior credit facility has restrictions pertaining to capital expenditures, acquisitions and the payment of cash dividends on all classes of stock. We believe the most restrictive covenant is the fixed charge coverage ratio. At September 30, 2010 we had a fixed charge coverage ratio of 1.57 to 1.00, which was in compliance with the required ratio of no less than 1.20 to 1.00.
      Interest Rate Swap Agreements
          In accordance with current accounting guidance , all investments in derivatives are recorded at fair value. A derivative is typically defined as an instrument whose value is “derived” from an underlying instrument, index or rate, has a notional amount, requires little or no initial investment and can be net settled. Our derivatives are reported as current assets and liabilities or other non-current assets or liabilities as appropriate.
          We use interest rate swap agreements to mitigate our exposure to increasing interest rates as well as to maintain an appropriate mix of fixed-rate and variable-rate debt.
          If we determine that contracts are effective at meeting our risk reduction and correlation criteria we account for them using hedge accounting. Under hedge accounting, we recognize the effective portion of changes in the fair value of the contracts in other comprehensive income and the ineffective portion in earnings. If we determine that contracts do not, or no longer, meet our risk reduction and correlation criteria, we account for them under a fair-value method recognizing changes in the fair value in earnings in the period of change. If we determine that a contract no longer meets our risk reduction and correlation criteria, or if the derivative expires, we recognize in earnings any accumulated balance in other comprehensive income related to the contract in the period of determination. For interest rate swap agreements accounted for under hedge accounting, we assess the effectiveness based on changes in their intrinsic value with changes in the time value portion of the contract reflected in earnings. All cash payments made or received under the contracts are recognized in interest expense.
          Credit exposure associated with nonperformance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value of the asset related to instruments recognized in the consolidated balance sheets. We attempt to mitigate the risk of nonperformance by selecting counterparties with high credit ratings and monitoring their creditworthiness and by diversifying derivative amounts with multiple counterparties.
          The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and are not representative of the potential for gain or loss on these instruments. Interest rates affect the fair value of derivatives. The fair values generally represent the estimated amounts that we would expect to receive or pay upon termination of the contracts at the reporting date. The fair values are based upon dealer quotes when available or an estimate using values obtained from independent pricing services, costs to settle or quoted market prices of comparable instruments.
          As of the quarter ended March 31, 2010, all of our interest rate swap agreements had expired and we have not entered into any new agreements during the quarters ended June 30, 2010 and September 30, 2010.

10


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
6. Long-Term Obligations, continued
          The following table summarizes cash paid and ineffectiveness reported in earnings as a result of our interest rate swap agreements (in thousands):
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2010   2009   2010   2009
Cash paid (1)
  $     $ 1,895     $ 382     $ 7,867  
Recognized loss (gain) from ineffectiveness (2)
  $     $ 1     $     $ (70 )
 
(1)   Our interest rate swap agreements effectively converted a certain amount of our variable-rate debt under our senior credit facility to fixed-rate for purposes of hedging against the risk of increasing interests rates. The above table depicts cash payments to the counterparties on our swap agreements. These payments are offset by a corresponding decrease in interest paid on our variable-rate debt under our senior credit facility. These amounts are included in interest expense, net in our condensed, consolidated income statements.
 
(2)   These recognized losses and gains are included in other income in our condensed, consolidated income statements.
7. Fair Value Measurements
          Current fair value accounting guidance includes a hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The current guidance establishes a three-tiered fair value hierarchy which 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, that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and
 
    Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
           Fair Value of Financial Instruments
          The FASB accounting guidance requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying condensed, consolidated balance sheets. Fair value as defined by the guidance is 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. The fair value estimates of financial instruments are not necessarily indicative of the amounts we might pay or receive in actual market transactions. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
           Cash and Cash Equivalents. These balances include cash and cash equivalents with maturities of less than three months. The carrying amount approximates fair value due to the short-term maturities of these instruments.
           Receivables, Less Allowance for Doubtful Accounts, Accounts Payable and Certain Other Accrued Liabilities. Due to their short-term nature, fair value approximates carrying value.

11


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
7. Fair Value Measurements, continued
           Long-Term Debt. We believe the carrying value of our variable-rate senior term debt at September 30, 2010 is a reasonable estimate of fair value. We believe the carrying value of our variable-rate debt at December 31, 2009 was not a reasonable estimate of fair value due to changes in the credit markets during 2009. We estimated the fair value of our variable-rate debt using discounted cash flow techniques utilizing current market rates, which incorporate our credit risk.
          The following table reflects the carrying value and fair value of our long-term debt (in thousands):
                                 
    As of September 30, 2010     As of December 31, 2009  
    Carrying     Fair     Carrying     Fair  
    Value     Value     Value     Value  
Variable-rate long-term debt
  $ 500,000     $ 500,000     $ 516,889     $ 513,053  
 
                       
           Interest Rate Swap Agreements . We use the market approach to measure fair value for our interest rate swap agreements. The market approach uses prices and other relevant information generated by market transactions involving comparable assets or liabilities.
          The following table reflects the fair value of our interest rate swap agreements, which is measured on a recurring basis as defined by the FASB accounting guidance (in thousands):
                                 
            Basis of Fair Value Measurement  
            Quoted Prices     Significant Other     Significant  
            In Active Markets     Observable     Unobservable  
            for Identical Items     Inputs     Inputs  
    Balance     (Level 1)     (Level 2)     (Level 3)  
At December 31, 2009
                               
Other accrued liabilities
  $ 380     $     $ 380     $  
 
                       
          As of September 30, 2010, we do not have any applicable non-recurring measurements of non-financial assets and non-financial liabilities.
8. Share-Based Compensation
Stock Option Activity
          A summary of our stock option activity for the nine months ended September 30, 2010 is as follows (in thousands):
                 
            Weighted-  
            Average  
    Stock     Exercise  
    Options     Price  
Outstanding at December 31, 2009
    4,300     $ 16.72  
Exercised
    (331 )     14.41  
Cancelled
    (48 )     19.81  
 
           
Outstanding at September 30, 2010
    3,921     $ 16.88  
 
           
 
               
Exercisable at September 30, 2010
    3,199     $ 16.84  
 
           
 
               
Expected to vest at September 30, 2010
    689     $ 17.04  
 
           

12


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
8. Share-Based Compensation, continued
          There were no stock options granted during the nine months ended September 30, 2010. The aggregate intrinsic value of our stock options exercised during the three and nine months ended September 30, 2010 was $166,000, and $2.1 million, respectively, and the actual tax benefit realized on options exercised during these periods was $64,000 and $827,000, respectively.
          At September 30, 2010 there was $1.9 million of total unrecognized compensation cost related to our stock options. This cost is expected to be recognized over a weighted-average period of 1.4 years.
          The compensation cost that has been charged against income for stock options for the three months ended September 30, 2010 and 2009 was $414,000 and $471,000, respectively. The corresponding income tax benefit recognized was $161,000 and $183,000 for the three months ended September 30, 2010 and 2009, respectively.
          The compensation cost that has been charged against income for stock options for the nine months ended September 30, 2010 and 2009 was $2.2 million and $1.5 million, respectively. The corresponding income tax benefit recognized was $872,000 and $574,000 for the nine months ended September 30, 2010 and 2009, respectively.
      Nonvested Stock Activity
          There were 240,400 nonvested common stock awards granted to employees during the three and nine months ended September 30, 2010. These awards will vest in equal annual installments over four years from the date of the grant. In addition, during the nine months ended September 30, 2010 we granted 11,104 shares of nonvested common stock to our non-employee directors, which will vest in equal annual installments over three years from the date of grant.
          Total compensation cost charged against income related to nonvested stock awards was $1.2 million and $1.5 million for the three months ended September 30, 2010 and 2009, respectively. The corresponding income tax benefit recognized in the income statement was $476,000 and $603,000 for the three months ended September 30, 2010 and 2009, respectively.
          Total compensation cost charged against income related to nonvested stock awards was $5.2 million and $4.5 million for the nine months ended September 30, 2010 and 2009, respectively. The corresponding income tax benefit recognized in the income statement was $2.0 and $1.7 million for the nine months ended September 30, 2010 and 2009, respectively.
          At September 30, 2010, there was $9.8 million of unrecognized compensation cost related to these nonvested shares, which will be recognized over a weighted-average period of 3.0 years. A summary of our nonvested stock activity for the nine months ended September 30, 2010 is as follows:
                 
            Grant Date
            Weighted-
            Average Fair
            Value
    Shares   Per Share
Outstanding at December 31, 2009
    691,764     $ 30.54  
Granted
    251,504     $ 20.56  
Vested
    (262,275 )   $ 31.79  
Forfeited/Canceled
    (10,355 )   $ 30.35  
 
               
Outstanding at September 30, 2010
    670,638     $ 26.31  
 
               

13


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
8. Share-Based Compensation, continued
      Restricted Stock Unit Activity
          Pursuant to the terms of the 2006 Equity Incentive Plan, on April 17, 2009, we awarded 84,757 restricted stock units in lieu of cash bonuses to our four senior executive officers for services performed in fiscal year 2008. Restricted stock units differ from the nonvested stock awards mentioned above in that the restricted stock units were fully vested or earned by the employee on the grant date; however, are restricted such that the participant will not have any right, title, or interest in, or otherwise be considered the owner of, any of the shares of common stock covered by the restricted stock units until such shares of common stock are settled. The restricted stock units will be settled upon the first to occur of the following: May 1, 2012, the date of the senior executive’s separation from service, death or disability, or the date of a change in control. The restricted stock units had a grant date fair value of $22.90 per share resulting in a total value of $1.9 million and the grant was reported as a non-cash financing activity for the September 30, 2009 period. There were no restricted stock grants for the September 30, 2010 period.
9. Calculation of Earnings per Share
          Basic earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after giving effect to all dilutive potential common shares outstanding during the period. Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Net income attributable to VCA Antech, Inc
  $ 27,431     $ 36,361     $ 88,770     $ 106,076  
 
                       
 
                               
Weighted-average common shares outstanding:
                               
Basic
    86,086       85,217       85,985       84,909  
Effect of dilutive potential common shares:
                               
Stock options
    632       951       812       779  
Nonvested shares
    246       263       201       205  
 
                       
Diluted
    86,964       86,431       86,998       85,893  
 
                       
 
                               
Basic earnings per share
  $ 0.32     $ 0.43     $ 1.03     $ 1.25  
 
                       
Diluted earnings per share
  $ 0.32     $ 0.42     $ 1.02     $ 1.23  
 
                       
          For the three months ended September 30, 2010 and 2009, potential common shares of 1,162,389 and 9,111, respectively, were excluded from the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.
          For the nine months ended September 30, 2010 and 2009, potential common shares of 13,919 and 1,227,008, respectively, were excluded from the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.

14


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
10. Comprehensive Income
          Total comprehensive income consists of net income and the other comprehensive income during the three and nine months ended September 30, 2010 and 2009. The following table provides a summary of comprehensive income (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Net income
  $ 28,587     $ 37,486     $ 92,036     $ 109,335  
Other comprehensive income:
                               
Foreign currency translation adjustments
    172       415       103       592  
Unrealized gain on foreign currency
    364       316       287       473  
Tax expense
    (142 )     (124 )     (112 )     (185 )
Unrealized loss on hedging instruments
          (245 )     (2 )     (1,315 )
Tax benefit
          96       1       514  
Losses on hedging instruments reclassified to income
          1,895       382       7,867  
Tax benefit
          (741 )     (149 )     (3,076 )
 
                       
Other comprehensive income
    394       1,612       510       4,870  
 
                       
Total comprehensive income
    28,981       39,098       92,546       114,205  
Comprehensive income attributable to noncontrolling interests
    1,156       1,125       3,266       3,259  
 
                       
Comprehensive income attributable to VCA Antech, Inc
  $ 27,825     $ 37,973     $ 89,280     $ 110,946  
 
                       
11. Lines of Business
          Our reportable segments are Animal Hospital, Laboratory and Medical Technology. These segments are strategic business units that have different services, products and/or functions. The segments are managed separately because each is a distinct and different business venture with unique challenges, risks and rewards. Our Animal Hospital segment provides veterinary services for companion animals and sells related retail and pharmaceutical products. Our Laboratory segment provides diagnostic laboratory testing services for veterinarians, both associated with our animal hospitals and those independent of us. Our Medical Technology segment sells digital radiography and ultrasound imaging equipment, related computer hardware, software and ancillary services to the veterinary market. We also operate a corporate office that provides general and administrative support services for our other segments.
          The accounting policies of our segments are essentially the same as those described in the summary of significant accounting policies included in our 2009 Annual Report on Form 10-K. See Note 3, Multiple-Deliverable Revenue Arrangements , for an update on our revenue recognition policies as a result of implementing the FASB’s accounting guidance on multiple-deliverable revenue arrangements. We evaluate the performance of our segments based on gross profit and operating income. For purposes of reviewing the operating performance of our segments all intercompany sales and purchases are generally accounted for as if they were transactions with independent third parties at current market prices.

15


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
11. Lines of Business, continued
          The following is a summary of certain financial data for each of our segments (in thousands):
                                                 
    Animal             Medical             Intercompany        
    Hospital     Laboratory (1)     Technology (1)     Corporate     Eliminations     Total (1)  
Three Months Ended September 30, 2010
                                               
External revenue
  $ 276,739     $ 67,872     $ 14,092     $     $     $ 358,703  
Intercompany revenue
          9,420       3,314             (12,734 )      
 
                                   
Total revenue
    276,739       77,292       17,406             (12,734 )     358,703  
Direct costs
    230,113       42,579       12,152             (11,440 )     273,404  
 
                                   
Gross profit
    46,626       34,713       5,254             (1,294 )     85,299  
Selling, general and administrative expense
    5,599       6,804       3,731       10,971             27,105  
Net loss on sale and disposal of assets
    114       20       17       1             152  
 
                                   
Operating income (loss)
  $ 40,913     $ 27,889     $ 1,506     $ (10,972 )   $ (1,294 )   $ 58,042  
 
                                   
 
                                               
Depreciation and amortization
  $ 8,258     $ 2,464     $ 606     $ 616     $ (263 )   $ 11,681  
Capital expenditures
  $ 16,969     $ 1,599     $ 428     $ 1,394     $ (640 )   $ 19,750  
 
                                               
Three Months Ended September 30, 2009
                                               
External revenue
  $ 257,385     $ 69,712     $ 11,465     $     $     $ 338,562  
Intercompany revenue
          8,167       1,850             (10,017 )      
 
                                   
Total revenue
    257,385       77,879       13,315             (10,017 )     338,562  
Direct costs
    206,172       41,976       9,247             (9,410 )     247,985  
 
                                   
Gross profit
    51,213       35,903       4,068             (607 )     90,577  
Selling, general and administrative expense
    5,162       5,621       3,753       10,159             24,695  
Net loss on sale and disposal of assets
    400       1       1       7             409  
 
                                   
Operating income (loss)
  $ 45,651     $ 30,281     $ 314     $ (10,166 )   $ (607 )   $ 65,473  
 
                                   
 
                                               
Depreciation and amortization
  $ 6,777     $ 2,377     $ 603     $ 603     $ (214 )   $ 10,146  
Capital expenditures
  $ 10,571     $ 2,388     $ 347     $ 557     $ (549 )   $ 13,314  
 
(1)   Certain prior year amounts have been reclassified to reflect the transfer of certain business operations to the Laboratory segment from the Medical Technology segment. The reclassifications did not have a material impact on either of our segments.

16


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
11. Lines of Business, continued
                                                 
    Animal             Medical             Intercompany        
    Hospital     Laboratory (1)     Technology (1)     Corporate     Eliminations     Total (1)  
Nine Months Ended September 30, 2010
                                               
External revenue
  $ 791,002     $ 210,531     $ 41,823     $     $     $ 1,043,356  
Intercompany revenue
          27,913       5,982             (33,895 )      
 
                                   
Total revenue
    791,002       238,444       47,805             (33,895 )     1,043,356  
Direct costs
    653,671       126,647       33,373             (31,913 )     781,778  
 
                                   
Gross profit
    137,331       111,797       14,432             (1,982 )     261,578  
Selling, general and administrative expense
    16,859       19,485       10,650       47,296             94,290  
Net loss on sale and disposal of assets
    63       21       71       8             163  
 
                                   
Operating income (loss)
  $ 120,409     $ 92,291     $ 3,711     $ (47,304 )   $ (1,982 )   $ 167,125  
 
                                   
 
                                               
Depreciation and amortization
  $ 23,240     $ 7,273     $ 1,812     $ 1,815     $ (753 )   $ 33,387  
Capital expenditures
  $ 39,946     $ 3,937     $ 634     $ 4,579     $ (1,421 )   $ 47,675  
 
                                               
Nine Months Ended September 30, 2009
                                               
External revenue
  $ 757,030     $ 213,987     $ 28,271     $     $     $ 999,288  
Intercompany revenue
          24,930       4,092             (29,022 )      
 
                                   
Total revenue
    757,030       238,917       32,363             (29,022 )     999,288  
Direct costs
    609,520       125,909       21,542             (27,777 )     729,194  
 
                                   
Gross profit
    147,510       113,008       10,821             (1,245 )     270,094  
Selling, general and administrative expense
    15,924       16,832       8,959       28,838             70,553  
Net loss on sale and disposal of assets
    270       28       7       5,299             5,604  
 
                                   
Operating income (loss)
  $ 131,316     $ 96,148     $ 1,855     $ (34,137 )   $ (1,245 )   $ 193,937  
 
                                   
 
                                               
Depreciation and amortization
  $ 19,636     $ 6,865     $ 1,327     $ 1,759     $ (601 )   $ 28,986  
Capital expenditures
  $ 29,447     $ 6,506     $ 665     $ 3,235     $ (1,331 )   $ 38,522  
 
                                               
At September 30, 2010
                                               
Total assets
  $ 1,290,635     $ 214,191     $ 71,101     $ 202,555     $ (14,985 )   $ 1,763,497  
 
                                   
At December 31, 2009
                                               
Total assets
  $ 1,158,891     $ 207,043     $ 71,019     $ 201,024     $ (10,573 )   $ 1,627,404  
 
                                   
 
(1)   Certain prior year amounts have been reclassified to reflect the transfer of certain business operations to the Laboratory segment from the Medical Technology segment. The reclassifications did not have a material impact on either of our segments.

17


Table of Contents

VCA Antech, Inc. and Subsidiaries
Notes to Condensed, Consolidated Financial Statements (Continued)
12. Commitments and Contingencies
          We have certain commitments, including operating leases and purchase agreements. These items are discussed in detail in our consolidated financial statements and notes thereto included in our 2009 Annual Report on Form 10-K. We also have contingencies as follows:
      a. Earn-Out Payments
          We have contractual arrangements in connection with certain acquisitions that were accounted for under previous business combinations accounting guidance, whereby additional cash may be paid to former owners of acquired companies upon attainment of specified financial criteria as set forth in the respective agreements. The amount to be paid cannot be determined until the earn-out periods expire and the attainment of criteria is established. If the specified financial criteria are attained, at September 30, 2010, we will be obligated to pay an additional $1.3 million. We adopted new accounting guidance regarding business combinations for acquisitions with acquisition dates of January 1, 2009 or later. Under the new guidance contingent consideration, such as earn-out liabilities, are now recognized as part of the consideration transferred on the acquisition date and a corresponding liability is recorded based on the fair value of the liability if the fair value is known or determinable. The changes in fair value are recognized in earnings where applicable at each reporting period.
      b. Other Contingencies
          We have certain contingent liabilities resulting from litigation and claims incident to the ordinary course of our business. We believe that the probable resolution of such contingencies will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
13. Subsequent Events
     On November 1, 2010, we acquired the remaining 29.6% interest in Pet DRx Corporation (“Pet DRx”), a provider of veterinary primary care and specialized services to companion animals. The acquisition expands our presence in the California market. Under the agreement we acquired Pet DRx for a total purchase price of $41.3 million of which approximately $4.1 million was disbursed subsequent to the quarter ended September 30, 2010. The results of Pet DRx are reported within our Animal Hospital segment.

18


Table of Contents

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         
    Page
    20  
 
       
    20  
 
       
    22  
 
       
    23  
 
       
    25  
 
       
    29  

19


Table of Contents

Introduction
           The following discussion should be read in conjunction with our condensed, consolidated financial statements provided under Part I, Item I of this Quarterly report on Form 10-Q. We have included herein statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements in this report using words like “believe,” “intend,” “expect,” “estimate,” “may,” “plan,” “should plan,” “project,” “contemplate,” “anticipate,” “predict,” “potential,” “continue,” or similar expressions. You may find some of these statements below and elsewhere in this report. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change are described throughout this report and in our Annual Report on Form 10-K, particularly in “Risk Factors,” Part I, Item 1A of that report.
           The forward-looking information set forth in this Quarterly Report on Form 10-Q is as of November 8, 2010, and we undertake no duty to update this information. Shareholders and prospective investors can find information filed with the SEC after November 8, 2010 at our website at http://investor.vcaantech.com or at the SEC’s website at www.sec.gov .
          We are a leading national animal healthcare company. We provide veterinary services and diagnostic testing to support veterinary care and we sell diagnostic imaging equipment, other medical technology products and related services to veterinarians. Our reportable segments are as follows:
    Our Animal Hospital segment operates the largest network of freestanding, full-service animal hospitals in the nation. Our animal hospitals offer a full range of general medical and surgical services for companion animals. We treat diseases and injuries, offer pharmaceutical and retail products and perform a variety of pet wellness programs, including health examinations, diagnostic testing, routine vaccinations, spaying, neutering and dental care. At September 30, 2010, our animal hospital network consisted of 523 animal hospitals in 40 states.
 
    Our Laboratory segment operates the largest network of veterinary diagnostic laboratories in the nation. Our laboratories provide sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. At September 30, 2010, our Laboratory network consisted of 49 laboratories serving all 50 states and certain areas in Canada.
 
    Our Medical Technology segment sells digital radiography and ultrasound imaging equipment, related computer hardware, software and ancillary services.
          The practice of veterinary medicine is subject to seasonal fluctuation. In particular, demand for veterinary services is significantly higher during the warmer months because pets spend a greater amount of time outdoors where they are more likely to be injured and are more susceptible to disease and parasites. In addition, use of veterinary services may be affected by levels of flea infestation, heartworm and ticks, and the number of daylight hours.
          Our revenue has been adversely impacted by the current economic recession. We are unable to forecast the timing or degree of any economic recovery. Further, trends in the general economy may not be reflected in our business at the same time or in the same degree as in the general economy. The timing and degree of any economic recovery, and its impact on our business, are among the important factors that could cause our actual results to differ from our forward-looking information.
Executive Overview
          During the three and nine months ended September 30, 2010, the slow pace of the economic recovery continued to impact organic revenue growth in both our Animal Hospital and Laboratory business segments. We achieved an increase in consolidated revenue through acquired animal hospitals and internal revenue growth in our Medical Technology business segment. Our Animal Hospital same-store revenue declined 4.0% and 2.5% for the three and nine months ended September 30, 2010, respectively. Our Laboratory internal revenue declined 0.9% and 0.4% for the three and nine months ended September 30, 2010. Our overall earnings for the quarter and year-to-date included $2.6 million, or $1.6 million net of tax, in costs related to the refinancing of our long-term debt and $5.4 million, or $3.5 million net of tax, related to additional state tax payments required as a result of a tax settlement reached during the quarter. The nine months ended

20


Table of Contents

September 30, 2010 was also affected by the impact of charges for executive compensation related to consulting agreements entered into during the second quarter.
      Refinancing Transactions
          On August 19, 2010 we refinanced our senior credit facility. The new senior credit facility provides for $500 million of senior term notes and a $100 million revolving credit facility. Both the senior term notes and the revolving credit facility are priced at LIBOR plus 225 basis points, a 75 basis point increase from our previous credit facility, see Note 6, Long-Term Obligations , in our condensed, consolidated financial statements of this quarterly report on Form 10-Q for a more detailed discussion of applicable interest rates on our new debt. In conjunction with these refinancing transactions, we incurred $9.4 million in debt retirement costs of which approximately $2.6 million, or $1.6 million after tax were recognized as part of income from continuing operations for the three and nine months ended September 30, 2010 and the remaining $6.8 million were capitalized as deferred financing costs which will be amortized over the term of the credit facility. Included in the $2.6 million of debt retirement costs included in income from continuing operations was approximately $232,000 of previously deferred financing costs that were written off as part of the transaction.
      Acquisitions and Facilities
          Our growth strategy includes the acquisition of independent animal hospitals. We currently anticipate that we will acquire $110 million to $120 million, inclusive of Pet DRx Corporation, of annualized Animal Hospital revenue by the end of 2010. We also evaluate the acquisition of animal hospital chains and laboratories, or related businesses if favorable opportunities are presented. The following table summarizes the changes in the number of facilities operated by our Animal Hospital and Laboratory segments during the nine months ended September 30, 2010:
         
Animal Hospitals:
       
Beginning of period
    489  
Acquisitions
    40  
Sold, closed or merged
    (6 )
 
     
End of period
    523  
 
     
 
       
Laboratories:
       
Beginning of period
    47  
Acquisitions
     
Acquisitions relocated into our existing laboratories
    (1 )
Created
    3  
 
     
End of period
    49  
 
     
          The following table summarizes the aggregate consideration for the 17 independent animal hospitals and three laboratories acquired during the nine months ended September 30, 2010, and the allocation of the purchase price (in thousands):
 
Consideration:
       
Cash (1)
  $ 38,294  
Contingent consideration
    259  
 
     
Fair value of total consideration transferred
  $ 38,553  
 
     
 
       
Allocation of the Purchase Price:
       
Tangible assets
  $ 2,425  
Identifiable intangible assets
    5,614  
Goodwill (2)
    34,208  
Other liabilities assumed
    (3,694 )
 
     
Total
  $ 38,553  
 
     
 
(1)   See the Cash Flows from Investing Activities section in the Liquidity and Capital Resources discussion for reconciliation of cash paid for acquisitions per this schedule to the condensed, consolidated statement of cash flows.

21


Table of Contents

(2)   We expect that $24.4 million of the goodwill recorded for these acquisitions as of September 30, 2010 will be fully deductible for income tax purposes.
          In addition to the purchase price listed above, we made cash payments for real estate acquired in connection with our acquisition of animal hospitals totaling $5.8 million for the nine months ended September 30, 2010.
      Acquisition of Pet DRx Corporation
          On July 1, 2010, we acquired a 70.4% interest in Pet DRx Corporation (“Pet DRx”), a provider of veterinary primary care and specialized services to companion animals. Pet DRx operated 23 animal hospitals in California at the time of its acquisition. The acquisition expands our presence in the California market. We acquired the remaining portion of Pet DRx in November 2010. The aggregate purchase price in both steps was $41.3 million. Our condensed, consolidated financial statements reflect the operating results of Pet DRx since July 1, 2010.
          The following table summarizes the purchase price in the first step of the Pet DRx acquisition and the preliminary allocation of the purchase price (in thousands):
         
Consideration:
       
Cash paid to bondholders
  $ 29,532  
Cash paid to shareholders
  $ 4,520  
 
     
Fair value of total consideration transferred
  $ 34,052  
 
     
 
       
Allocation of the Purchase Price:
       
Tangible assets
  $ 7,668  
Identifiable intangible assets
    3,074  
Goodwill (1)
    51,908  
Other liabilities assumed
    (25,428 )
 
     
Total
    37,222  
Noncontrolling interest
    (3,170 )
 
     
 
  $ 34,052  
 
     
 
       
Acquisition-related costs (included in selling, general and administrative expense in our income statement for the three months ended September 30, 2010)
  $ 1,236  
 
     
 
       
Acquisition-related costs (included in selling, general and administrative expense in our income statement for the nine months ended September 30, 2010)
  $ 2,108  
 
     
 
(1)   As of September 30, 2010, we have not finalized the determination of the amount of goodwill that will be deductible for income tax purposes.
          The allocation of the purchase price is preliminary because certain events have not occurred or have not been completed or finalized, including but not limited to, the valuation of assets, including intangible assets, and liabilities.
          The purchase price paid in the second step of the Pet DRx acquisition will be first reflected in our financial statements for the fourth quarter 2010.
Critical Accounting Policies
          Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), which require management to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable. Actual results may differ from those estimates. Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. A discussion of such critical accounting policies, which include revenue recognition, valuation of goodwill and other intangible assets, income taxes, and self-insured liabilities can be found in our 2009 Annual Report on Form 10-K. During the quarter ended March 31, 2010, we implemented new accounting guidance related to multiple-deliverable revenue arrangements. Other than the changes to our revenue recognition policies there have been no other material changes to the policies noted above as of this quarterly report on Form 10-Q for the period ended September 30, 2010.

22


Table of Contents

      Medical Technology Revenue
          We sell our digital radiography imaging equipment with multiple elements, including hardware, software licenses and/or services. Under new accounting guidance, tangible products containing software components and nonsoftware components that function together to deliver the tangible product’s essential functionality are now accounted for under the FASB’s guidance pertaining to multiple-deliverable revenue arrangements. These types of arrangements were previously accounted for under software accounting guidance. Accordingly, we now account for our digital radiography imaging equipment under this revised guidance.
          Sales arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method, whereby any discount in the arrangement is allocated proportionally to each deliverable on the basis of each deliverable’s selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. For elements where VSOE is available, VSOE of fair value is based on the price for those products and services when sold separately by us or the price established by management with the relevant authority. TPE of selling price is the price of our, or any of our competitor’s, largely interchangeable products or services in stand-alone sales to similarly situated customers. Our ESP was based upon the actual selling price of our DR equipment bundled with our Sound Assurance warranty. We calculated the stand-alone selling price of the DR equipment using a cost plus margin approach. The stand-alone cost in most cases was determined using manufacturer data. The margin however was based upon the amount received on the actual sale of the bundled product, which does not differ materially from the margin exclusive of the post-contract customer support (“PCS”). By utilizing this cost plus actual margin method we were able to incorporate both our internal pricing strategies in addition to external market conditions.
          We do not currently have VSOE for our digital radiography imaging equipment as units are not sold on a stand-alone basis without support packages. As this is also true for our competitors, TPE of selling price is also unavailable. We therefore use the ESP to determine the selling price of our digital radiography imaging equipment using the methodology mentioned above. See Note 3, Multiple-Deliverable Revenue Arrangements , in our condensed, consolidated financial statements of this quarterly report on Form 10-Q for a more detailed discussion.
          We recognize revenue when the services are provided or at the time of delivery or installation and customer acceptance. Generally, at the time of delivery and installation of equipment the only undelivered item is the PCS. This obligation is contractually defined in both terms of scope and period. For the PCS, we recognize the revenue for these services on a straight-line basis over the period of support and we expense the costs of these services as they are incurred.
Consolidated Results of Operations
          The following table sets forth components of our condensed, consolidated income statements expressed as a percentage of revenue:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Revenue:
                               
Animal Hospital
    77.1 %     76.0 %     75.8 %     75.8 %
Laboratory
    21.5       23.1       22.9       23.9  
Medical Technology
    4.9       3.9       4.6       3.2  
Intercompany
    (3.5 )     (3.0 )     (3.3 )     (2.9 )
 
                       
Total revenue
    100.0       100.0       100.0       100.0  
Direct costs
    76.2       73.2       74.9       73.0  
 
                       
Gross profit
    23.8       26.8       25.1       27.0  
Selling, general and administrative expense
    7.6       7.4       9.0       7.1  
Net loss on sale of assets
          0.1       0.1       0.5  
 
                       
Operating income
    16.2       19.3       16.0       19.4  
Interest expense, net
    1.0       1.4       0.9       1.6  
Debt retirement costs
    0.7             0.2        
 
                       
Income before provision for income taxes
    14.5       17.9       14.9       17.8  
Provision for income taxes
    6.5       6.8       6.1       6.9  
 
                       
Net income
    8.0       11.1       8.8       10.9  
Net income attributable to noncontrolling interests
    0.4       0.4       0.3       0.3  
 
                       
Net income attributable to VCA Antech, Inc
    7.6 %     10.7 %     8.5 %     10.6 %
 
                       

23


Table of Contents

      Revenue
          The following table summarizes our revenue (in thousands, except percentages):
                                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009             2010     2009        
            % of             % of     %             % of             % of     %  
    $     Total     $     Total     Change     $     Total     $     Total     Change  
Animal Hospital
  $ 276,739       77.1 %   $ 257,385       76.0 %     7.5 %   $ 791,002       75.8 %   $ 757,030       75.8 %     4.5 %
Laboratory (1)
    77,292       21.5 %     77,879       23.1 %     (0.8 )%     238,444       22.9 %     238,917       23.9 %     (0.2 )%
Medical Technology (1)
    17,406       4.9 %     13,315       3.9 %     30.7 %     47,805       4.6 %     32,363       3.2 %     47.7 %
Intercompany
    (12,734 )     (3.5 )%     (10,017 )     (3.0 )%     27.1 %     (33,895 )     (3.3 )%     (29,022 )     (2.9 )%     16.8 %
 
                                                                       
Total revenue
  $ 358,703       100.0 %   $ 338,562       100.0 %     5.9 %   $ 1,043,356       100.0 %   $ 999,288       100.0 %     4.4 %
 
                                                                       
 
(1)   Prior year amounts have been adjusted to reflect the reclassification of certain business operations from our Medical Technology segment to our Laboratory segment. The reclassifications did not have a material impact on either segment.
          Consolidated revenue increased $20.1 million for the three months ended September 30, 2010 and $44.1 million for the nine months ended September 30, 2010 as compared to the same periods in the prior year. The increase was attributable to revenue from acquired animal hospitals and increased revenue from our Medical Technology business segment. The increase was partially offset by a decline in Animal Hospital same-store revenue. Our Animal Hospital same-store revenue declined 4.0% and 2.5% for the three and nine months ended September 30, 2010, respectively. As mentioned previously, our organic growth rates were impacted by the slow pace of the economic recovery.
      Gross Profit
          The following table summarizes our gross profit in both dollars and as a percentage of applicable revenue, or gross margin (in thousands, except percentages):
                                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009             2010     2009        
            Gross             Gross     %             Gross             Gross     %  
    $     Margin     $     Margin     Change     $     Margin     $     Margin     Change  
Animal Hospital
  $ 46,626       16.8 %   $ 51,213       19.9 %     (9.0 )%   $ 137,331       17.4 %   $ 147,510       19.5 %     (6.9 )%
Laboratory (1)
    34,713       44.9 %     35,903       46.1 %     (3.3 )%     111,797       46.9 %     113,008       47.3 %     (1.1 )%
Medical Technology (1)
    5,254       30.2 %     4,068       30.6 %     29.2 %     14,432       30.2 %     10,821       33.4 %     33.4 %
Intercompany
    (1,294 )             (607 )                     (1,982 )             (1,245 )                
 
                                                                       
Total gross profit
  $ 85,299       23.8 %   $ 90,577       26.8 %     (5.8 )%   $ 261,578       25.1 %   $ 270,094       27.0 %     (3.2 )%
 
                                                                       
 
(1)   Prior year amounts have been adjusted to reflect the reclassification of certain business operations from our Medical Technology segment to our Laboratory segment. The reclassifications did not have a material impact on either segment.
          Consolidated gross profit decreased $5.3 million for the three months ended September 30, 2010 and $8.5 million for the nine months ended September 30, 2010 as compared to the same periods in the prior year. The decrease was primarily due to a decline in Animal Hospital same-store revenue and a decline in both acquired and same-store Animal Hospital gross margins and to a lesser extent a decline in internal revenue and gross margin in our Laboratory segment. The decreases in our gross margin for the three and nine months ended September 30, 2010 was partially offset by increased gross profit in our Medical Technology segment from increased sales.

24


Table of Contents

Segment Results
      Animal Hospital Segment
          The following table summarizes revenue, gross profit and gross margin for our Animal Hospital segment (in thousands, except percentages):
                                                 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2010   2009   % Change   2010   2009   Change
Revenue
  $ 276,739     $ 257,385       7.5 %   $ 791,002     $ 757,030       4.5 %
Gross profit
  $ 46,626     $ 51,213       (9.0 )%   $ 137,331     $ 147,510       (6.9 )%
Gross margin
    16.8 %     19.9 %             17.4 %     19.5 %        
          Animal Hospital revenue increased $19.4 million for the three months ended September 30, 2010 and $34.0 million for the nine months ended September 30, 2010 as compared to the same periods in the prior year. The components of the increase are summarized in the following table (in thousands, except percentages and average revenue per order):
                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009     % Change     2010     2009     % Change  
Same-store facilities:
                                               
Orders (1)
    1,596       1,680       (5.0 )%     4,585       4,804       (4.6 )%
Average revenue per order (2)
  $ 153.69     $ 152.10       1.0 %   $ 155.85     $ 152.56       2.2 %
 
                                       
Same-store revenue (1)
  $ 245,330     $ 255,506       (4.0 )%   $ 714,532     $ 732,870       (2.5 )%
Business day adjustment (3)
    1,591                     1,614                
Net acquired revenue (4)
    29,818       1,879               74,856       24,160          
 
                                       
Total
  $ 276,739     $ 257,385       7.5 %   $ 791,002     $ 757,030       4.5 %
 
                                       
 
(1)   Same-store revenue and orders were calculated using Animal Hospital operating results, adjusted to exclude the operating results for newly acquired animal hospitals that we did not own as of the beginning of the comparable period in the prior year. Same-store revenue also includes revenue generated by customers referred from our relocated or combined animal hospitals, including those merged upon acquisition.
 
(2)   Computed by dividing same-store revenue by same-store orders. The average revenue per order may not calculate exactly due to rounding.
 
(3)   The business day adjustment reflects the impact of one additional business day in 2010 as compared to 2009 for both periods presented.
 
(4)   Net acquired revenue represents the revenue from those animal hospitals acquired, net of revenue from those animal hospitals sold or closed, on or after the beginning of the comparable period, which was July 1, 2009 for the three month analysis and January 1, 2009 for the nine month analysis. Fluctuations in net acquired revenue occur due to the volume, size, and timing of acquisitions and dispositions during the periods from this date through the end of the applicable period.
          We believe that factors contributing to the continued decline in our volume of same-store orders during the three and nine months ended September 30, 2010 include the continued impact of the current economic environment and the wide availability of many pet-related products, traditionally sold in our animal hospitals, in retail stores and other distribution channels such as the Internet.
          In addition, our business strategy is to place a greater emphasis on comprehensive wellness visits and advanced medical procedures, which typically generate higher priced orders. The migration of lower priced orders from our animal hospitals to other distribution channels mentioned above and our emphasis on comprehensive wellness visits has over the past several years resulted in a decrease in lower priced orders and an increase in higher priced orders. However, this trend did not continue during the three and nine months ended September 30, 2010 when we experienced a decrease in the number of both lower and higher priced orders, which we believe is primarily a consequence of current economic

25


Table of Contents

conditions in the United States, and the impact of changes in our overall business environment on the mix of tests performed.
          Price increases also contributed to the increase in the average revenue per order. Prices at each of our animal hospitals are reviewed regularly and adjustments are made based on market considerations, demographics and our costs. These adjustments historically have approximated 3% to 6% on most services at the majority of our animal hospitals and are typically implemented in February of each year; however, price increases in 2010 have generally ranged between 2% and 3%.
          Animal Hospital gross profit is calculated as Animal Hospital revenue less Animal Hospital direct costs. Animal Hospital direct costs are comprised of all costs of services and products at the animal hospitals, including, but not limited to, salaries of veterinarians, technicians and all other animal hospital-based personnel, facilities rent, occupancy costs, supply costs, depreciation and amortization, certain marketing and promotional expenses, and costs of goods sold associated with the retail sales of pet food and pet supplies.
          Our combined Animal Hospital gross margin decreased to 16.8% for the three months ended September 30, 2010 and to 17.4% for the nine months ended September 30, 2010 as compared to 19.9% and 19.5% in the prior year periods. Our same-store gross margin decreased to 17.3% for the three months ended September 30, 2010 and to 18.0% for the nine months ended September 30, 2010 as compared to 20.0% and 19.7% for the prior year periods.
          The decrease in same-store gross margin for the three and nine months ended September 30, 2010 was primarily due to the decline in same-store revenue compounded by increases in compensation costs, including health insurance, marketing, and depreciation and amortization expense. The combined Animal Hospital gross margin was further impacted by the lower gross margin from our acquired animal hospitals.
          Over the last several years we have acquired a significant number of animal hospitals. Many of these newly acquired animal hospitals have a lower gross margin at the time of acquisition than our same-store facilities. Subsequently, we have improved the lower gross margin at our acquired animal hospitals, in the aggregate, by improving animal hospital revenue, reducing costs and/or increasing operating leverage.
      Laboratory Segment
          The following table summarizes revenue and gross profit for our Laboratory segment (in thousands, except percentages):
                                                 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2010   2009   % Change   2010   2009   % Change
Revenue
  $ 77,292     $ 77,879       (0.8 )%   $ 238,444     $ 238,917       (0.2 )%
Gross profit
  $ 34,713     $ 35,903       (3.3 )%   $ 111,797     $ 113,008       (1.1 )%
Gross margin
    44.9 %     46.1 %             46.9 %     47.3 %        
          Laboratory revenue decreased $587,000 for the three months ended September 30, 2010 and $473,000 for the nine months ended September 30, 2010 as compared to the same periods in the prior year. The components of the changes in Laboratory revenue are detailed below (in thousands, except percentages and average revenue per requisition):
                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009     % Change     2010     2009     % Change  
Internal growth:
                                               
Number of requisitions (1)
    3,232       3,332       (3.0 )%     10,001       10,271       (2.6 )%
Average revenue per requisition (2)
  $ 23.89     $ 23.37       2.2 %   $ 23.79     $ 23.26       2.3 %
 
                                       
Total internal revenue (1)
  $ 77,209     $ 77,879       (0.9 )%   $ 237,938     $ 238,917       (0.4 )%
Acquired revenue (3)
    83                     506                
 
                                       
Total
  $ 77,292     $ 77,879       (0.8 )%   $ 238,444     $ 238,917       (0.2 )%
 
                                       
 
(1)   Internal revenue and requisitions were calculated using Laboratory operating results, adjusted to exclude the operating results of acquired laboratories that we did not own as of the beginning of the comparable period in the prior year, and

26


Table of Contents

    adjusted for the impact resulting from any differences in the number of billing days in comparable periods, if applicable.
 
(2)   Computed by dividing internal revenue by the number of requisitions.
 
(3)   Acquired revenue represents the current year period revenue recognized from our acquired laboratories that we did not own as of the beginning of the comparable period in the prior year.
          The decrease in Laboratory revenue for the three and nine months ended September 30, 2010 was due to a decrease in internal revenue attributable to a decline in volume partially offset by increases in average revenue per requisition. In prior years requisitions from internal growth have been driven by an ongoing trend in veterinary medicine to focus on the importance of laboratory diagnostic testing in the diagnosis, early detection and treatment of diseases, and the migration of certain tests to outside laboratories that have historically been performed in animal hospitals. While these factors historically have resulted in significant increases in internal requisitions, the economic environment and increased competition continue to impact requisitions in the current year.
          The average revenue per requisition increased slightly for the three and nine months ended September 30, 2010 as compared to prior year periods due to price increases which ranged from 3% to 4% in both February 2010 and February 2009. The price increases were offset by other factors including changes in the mix, performing lower-priced tests historically performed at the animal hospitals, and a decrease in higher-priced tests as a result of the current economic environment.
          Laboratory gross profit is calculated as Laboratory revenue less Laboratory direct costs. Laboratory direct costs are comprised of all costs of laboratory services, including but not limited to, salaries of veterinarians, specialists, technicians and other laboratory-based personnel, transportation and delivery costs, facilities rent, occupancy costs, depreciation and amortization and supply costs.
          Our Laboratory gross margin decreased to 44.9% and 46.9% for the three and nine months ended September 30, 2010, respectively, as compared to 46.1% and 47.3% in the prior year periods. The decreases in gross margin are primarily due to revenue declines, as well as increases in transportation costs from added routes and pick-ups, and increased costs from added laboratory locations, which typically experience higher costs as a percentage of revenue in the first years of operation.
      Medical Technology Segment
          The following table summarizes revenue and gross profit for our Medical Technology segment (in thousands, except percentages):
                                                 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2010   2009   % Change   2010   2009   % Change
Revenue
  $ 17,406     $ 13,315       30.7 %   $ 47,805     $ 32,363       47.7 %
Gross profit
  $ 5,254     $ 4,068       29.2 %   $ 14,432     $ 10,821       33.4 %
Gross margin
    30.2 %     30.6 %             30.2 %     33.4 %        
          Medical Technology revenue increased $4.1 million for the three months ended September 30, 2010 and $15.4 million for the nine months ended September 30, 2010 as compared to the prior year periods. The increases for the three months ended September 30, 2010 were due to increases in the unit sales of each of our digital radiography equipment product lines and ultrasound equipment sales. The increases for the nine months ended September 30, 2010 were due to the above mentioned increases in digital radiography equipment sales, partially due to the July 1, 2009 Eklin acquisition and increased customer service and ultrasound equipment sales. Medical Technology revenue also benefited from a change in our revenue recognition policy due to the implementation of new accounting guidance. See Note 3, Multiple-Deliverable Revenue Arrangements .
          Medical Technology gross profit is calculated as Medical Technology revenue less Medical Technology direct costs. Medical Technology direct costs are comprised of all product and service costs, including, but not limited to, all costs of equipment, related products and services, salaries of technicians, support personnel, trainers, consultants and other non-administrative personnel, depreciation and amortization and supply costs.
          Medical Technology gross profit increased $1.2 million for the three months ended September 30, 2010 and $3.6 million for the nine months ended September 30, 2010 as compared to the prior year periods. Gross margin decreased to 30.2% for the three and nine months ended September 30, 2010 as compared to 30.6% and 33.4% in the prior year periods.

27


Table of Contents

The increase in gross profit is attributable to the increase in revenue as discussed above. The decline in gross margin for the three and nine months ended September 30, 2010 was due to changes in product mix.
      Intercompany Revenue
          Laboratory revenue for the three and nine months ended September 30, 2010 included intercompany revenue of $9.4 million and $27.9 million, respectively, that was generated by providing laboratory services to our animal hospitals. Medical Technology revenue for the three and nine months ended September 30, 2010 included intercompany revenue of $3.3 million and $6.0 million, respectively, that was generated by providing products and services to our animal hospitals and laboratories. For purposes of reviewing the operating performance of our business segments, all intercompany transactions are accounted for as if the transaction was with an independent third party at current market prices. For financial reporting purposes, intercompany transactions are eliminated as part of our consolidation.
      Selling, General and Administrative Expense
          The following table summarizes our selling, general and administrative expense (“SG&A”) in both dollars and as a percentage of applicable revenue (in thousands, except percentages):
                                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009             2010     2009        
            % of             % of     %             % of             % of     %  
    $     Revenue     $     Revenue     Change     $     Revenue     $     Revenue     Change  
Animal Hospital
  $ 5,599       2.0 %   $ 5,162       2.0 %     8.5 %   $ 16,859       2.1 %   $ 15,924       2.1 %     5.9 %
Laboratory
    6,804       8.8 %     5,621       7.2 %     21.0 %     19,485       8.2 %     16,832       7.0 %     15.8 %
Medical Technology (1)
    3,731       21.4 %     3,753       28.2 %     (0.6 )%     10,650       22.3 %     8,959       27.7 %     18.9 %
Corporate
    10,971       3.1 %     10,159       3.0 %     8.0 %     47,296       4.5 %     28,838       2.9 %     64.0 %
 
                                                                       
Total SG&A (1)
  $ 27,105       7.6 %   $ 24,695       7.4 %     9.8 %   $ 94,290       9.0 %   $ 70,553       7.1 %     33.6 %
 
                                                                       
 
(1)   Prior year amounts have been reclassified to conform to the current year’s presentation.
          Consolidated SG&A increased $2.4 million for the three months ended September 30, 2010 and $23.7 million for the nine months ended September 30, 2010. The three and nine months ended September 30, 2010 included transaction costs of $1.2 million and $2.1 million, respectively, related to the Pet DRx acquisition. The nine months ended September 30, 2010 also included $14.5 million in estimated consulting and SERP expenses to be paid in accordance with consulting and SERP agreements entered into on June 30, 2010. Excluding these costs, consolidated SG&A increased $1.2 million and $7.1 million, respectively, for the three and nine months ended September 30, 2010. SG&A increases for the three and nine months ended September 30, 2010 were attributable to increased research and development costs and costs incurred to support the efforts of the sales team in our Laboratory segment. Additional SG&A increases for the nine months ended September 30, 2010 were primarily due to increases in other legal costs and costs incurred as a result of the continuing integration of Eklin in our Medical Technology segment.
      Operating Income
          The following table summarizes our operating income in both dollars and as a percentage of applicable revenue (in thousands, except percentages):
                                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009             2010     2009        
            % of             % of     %             % of             % of     %  
    $     Revenue     $     Revenue     Change     $     Revenue     $     Revenue     Change  
Animal Hospital
  $ 40,913       14.8 %   $ 45,651       17.7 %     (10.4 )%   $ 120,409       15.2 %   $ 131,316       17.3 %     (8.3 )%
Laboratory (1)
    27,889       36.1 %     30,281       38.9 %     (7.9 )%     92,291       38.7 %     96,148       40.2 %     (4.0 )%
Medical Technology (1)
    1,506       8.7 %     314       2.4 %     379.6 %     3,711       7.8 %     1,855       5.7 %     100.1 %
Corporate
    (10,972 )             (10,166 )             7.9 %     (47,304 )             (34,137 )             38.6 %
Intercompany
    (1,294 )             (607 )             113.2 %     (1,982 )             (1,245 )             59.2 %
 
                                                                       
Total operating income
  $ 58,042       16.2 %   $ 65,473       19.3 %     (11.3 )%   $ 167,125       16.0 %   $ 193,937       19.4 %     (13.8 )%
 
                                                                       

28


Table of Contents

 
(1)   Prior year amounts have been adjusted to reflect the reclassification of certain business operations from our Medical Technology segment to our Laboratory segment. The reclassifications did not have a material impact on either segment.
          The decrease in our consolidated operating income during the three and nine months ended September 30, 2010 was primarily due to the SG&A increases discussed above as well as the aforementioned decline in our Animal Hospital and Laboratory gross profit.
      Interest Expense, Net
          The following table summarizes our interest expense, net of interest income (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Interest expense:
                               
Senior term notes
  $ 2,892     $ 2,406     $ 7,467     $ 7,566  
Interest rate hedging agreements
          1,895       382       7,867  
Capital leases and other
    732       567       1,855       1,716  
Amortization of debt costs
    222       122       461       363  
 
                       
 
    3,846       4,990       10,165       17,512  
Interest income
    (227 )     (182 )     (601 )     (860 )
 
                       
Total interest expense, net of interest income
  $ 3,619     $ 4,808     $ 9,564     $ 16,652  
 
                       
 
                               
          The decrease in net interest expense for the three and nine months ended September 30, 2010 was attributable to a decrease in the overall weighted average interest rate primarily due to the gradual expiration of all of our higher cost fixed-rate swap agreements during the last twelve months.
      Provision for Income Taxes
          The effective rate for the three and nine months ended September 30, 2010 was 46.1% and 41.7%, respectively, which reflects a tax expense of $5.4 million, or $3.5 million net of tax, recognized during the quarter ended September 30, 2010 related to settlement of taxes on 2004 through 2007 taxable income.
Liquidity and Capital Resources
Introduction
          We generate cash primarily from payments made by customers for our veterinary services, payments from animal hospitals and other clients for our laboratory services, and from proceeds received from the sale of our imaging equipment and other related services. Our business historically has experienced strong liquidity, as fees for services provided in our animal hospitals are due at the time of service and fees for laboratory services are collected under standard industry terms. Our cash disbursements are primarily for payments related to the compensation of our employees, supplies and inventory purchases for our operating segments, occupancy and other administrative costs, interest expense, payments on long-term borrowings, capital expenditures and animal hospital acquisitions. Cash outflows fluctuate with the amount and timing of the settlement of these transactions.
          We manage our cash, investments and capital structure so we are able to meet the short-term and long-term obligations of our business while maintaining financial flexibility and liquidity. We forecast, analyze and monitor our cash flows to enable investment and financing within the overall constraints of our financial strategy.
          At September 30, 2010, our consolidated cash and cash equivalents totaled $132.2 million, representing a decrease of $13.0 million as compared to December 31, 2009. Cash flows generated from operating activities totaled $143.5 million in the nine months ended September 30, 2010, representing a decrease of $12.9 million as compared to the nine months ended September 30, 2009.

29


Table of Contents

          We have historically funded our working capital requirements, capital expenditures and investment in individual acquisitions from internally generated cash flows and we expect to continue to do so in the future. We have access to a revolving credit facility which was entered into during the quarter ended September 30, 2010 and expires August 2015. The funds borrowed under the new senior term notes were used to retire our existing senior term notes in the principal amount of $505.4 million. The new senior term notes and revolving credit facility bear interest based on the interest rate offered to our administrative agent on the London interbank market, or LIBOR, plus a margin of 2.25% per annum.
          Historically we have been able to obtain cash from other borrowings. The availability of financing in the form of debt or equity however is influenced by many factors including our profitability, operating cash flows, debt levels, debt ratings, contractual restrictions, and market conditions. Although in the past we have been able to obtain financing for material transactions on terms we believe to be reasonable, there is a possibility that we may not be able to obtain financing on favorable terms in the future.
Future Cash Flows
      Short-Term
          Other than our acquisitions of certain animal hospital chains, we historically have funded our working capital requirements, capital expenditures and investments in animal hospital acquisitions from internally generated cash flows. We anticipate that our cash on hand and net cash provided by operations will be sufficient to meet our anticipated cash requirements for the next 12 months. If we consummate one or more significant acquisitions of animal hospital chains during this period, we may seek additional debt or equity financing.
          For the year ended December 31, 2010, we expect to spend $110 million to $120 million, excluding real estate, related to the acquisition of independent animal hospitals and animal hospital chains. The ultimate number of acquisitions and cash used is largely dependent upon the attractiveness of the candidates and the strategic fit within our operations and as a consequence, our actual number of acquisitions and cash expenditures may be more or less than amounts currently estimated. From January 1, 2010 through September 30, 2010, we spent $72.4 million in connection with the acquisition of 40 animal hospitals, as well as $5.8 million for the related real estate. In addition, we expect to spend approximately $65.0 million in 2010 for both property and equipment additions and capital costs necessary to maintain our existing facilities, of which approximately $47.7 million had been expended at September 30, 2010.
      Long-Term
          Our long-term liquidity needs, other than those related to the day-to-day operations of our business, including commitments for operating leases, generally are comprised of scheduled principal and interest payments for our outstanding long-term indebtedness, capital expenditures related to the expansion of our business, and acquisitions in accordance with our growth strategy. As mentioned previously under the “Executive Overview” section, we completed the refinancing of our senior credit facility. Scheduled principal payments are to be repaid quarterly, see contractual obligations table included below for detail of amounts due by year. Principal payments are scheduled to begin on December 31, 2010.
          We are unable to project with certainty whether our long-term cash flow from operations will be sufficient to repay our long-term debt when it comes due. If this cash flow is insufficient, we expect that we will need to refinance such indebtedness, amend its terms to extend maturity dates, or issue common stock on our company. Our management cannot make any assurances that such refinancing or amendments, if necessary, will be available on attractive terms, if at all.
      Debt Related Covenants
          Our new senior credit facility contains certain financial covenants pertaining to fixed-charge coverage and leverage ratios. In addition, the senior credit facility has restrictions pertaining to capital expenditures, acquisitions and the payment of cash dividends. As of September 30, 2010, we were in compliance with these covenants, including the two covenant ratios, the fixed-charge coverage ratio and the leverage ratio.
          At September 30, 2010, we had a fixed-charge coverage ratio of 1.57 to 1.00, which was in compliance with the required ratio of no less than 1.20 to 1.00. The senior credit facility defines the fixed-charge coverage ratio as that ratio that is calculated on a last 12-month basis by dividing pro forma earnings before interest, taxes, depreciation and amortization, as defined by the senior credit facility (“pro forma earnings”), by fixed charges. Fixed charges are defined as

30


Table of Contents

cash interest expense, scheduled principal payments on debt obligations, capital expenditures, and provision for income taxes. Pro forma earnings include 12 months of operating results for businesses acquired during the period.
          At September 30, 2010, we had a leverage ratio of 1.92 to 1.00, which was in compliance with the required ratio of no more than 3.00 to 1.00. The senior credit facility defines the leverage ratio as that ratio which is calculated as total debt divided by pro forma earnings.
Historical Cash Flows
          The following table summarizes our cash flows (in thousands):
                 
    Nine Months Ended  
    September 30,  
    2010     2009  
Cash provided by (used in):
               
Operating activities
  $ 143,470     $ 156,321  
Investing activities
    (98,329 )     (94,520 )
Financing activities
    (58,127 )     4,224  
Effect of currency exchange rate changes on cash and cash equivalents
    38       17  
 
           
(Decrease) increase in cash and cash equivalents
    (12,948 )     66,042  
Cash and cash equivalents at beginning of period
    145,181       88,959  
 
           
Cash and cash equivalents at end of period
  $ 132,233     $ 155,001  
 
           
      Cash Flows from Operating Activities
          Net cash provided by operating activities decreased $12.9 million in the nine months ended September 30, 2010 as compared to the prior year period. This decrease was primarily due to lower operating income, compounded by an increase in cash paid for taxes, partially offset by a decrease in cash interest due to the expiration of our interest-rate swap agreements.
      Cash Flows from Investing Activities
          The table below presents the components of the changes in investing cash flows (in thousands):
                         
    Nine Months Ended        
    September 30,        
    2010     2009     Variance  
Investing Cash Flows:
                       
Acquisition of independent animal hospitals and laboratories
  $ (38,294 )   $ (35,559 )   $ (2,735 (1)
Acquisition of Pet DRx .
    (4,520 )           (4,520 )
Acquisition of Eklin
          (12,483 )     12,483  
Other
    (2,209 )     (3,811 )     1,602   (2)
 
                 
Total cash used for acquisitions
    (45,023 )     (51,853 )     6,830  
 
Property and equipment additions
    (47,675 )     (38,522 )     (9,153 (3)
Real estate acquired with acquisitions
    (5,834 )     (3,828 )     (2,006 (4)
Proceeds from sale of assets
    15       123       (108 )
Other
    188       (440 )     628  
 
                 
Net cash used in investing activities
  $ (98,329 )   $ (94,520 )   $ (3,809 )
 
                 
 
(1)   The number of acquisitions will vary from year to year based upon the available pool of suitable candidates. A discussion of our acquisitions is provided above in our Executive Overview .
 
(2)   The decrease in cash used for acquisitions—other relates to timing differences in pay-outs of holdbacks.

31


Table of Contents

(3)   The cash used to acquire property and equipment will vary from year to year based on upgrade requirements and expansion of our animal hospitals and laboratory facilities.
 
(4)   Due to the lower return on investment realized on acquired real estate we are highly selective in our decision to acquire real estate. The increase in cash used to acquire real estate is due to real estate purchased in connection with the acquisition of animal hospitals.
      Cash Flows from Financing Activities
          The table below presents the components of the changes in financing cash flows (in thousands):
                         
    Nine Months Ended        
    September 30,        
    2010     2009     Variance  
Financing Cash Flows:
                       
Repayment of debt
  $ (548,560 )   $ (5,898 )   $ (542,662 (1)
Proceeds from issuance of long-term debt
    500,000             500,000   (1)
Payment of financing costs
    (9,112 )           (9,112 (1)
Distributions to noncontrolling interest partners
    (3,314 )     (3,018 )     (296 (2)
Proceeds from stock options exercises
    4,781       13,110       (8,329 (3)
Excess tax benefits from stock options
    370       591       (221 )
Stock repurchases
    (2,292 )     (561 )     (1,731 (4)
 
                 
Net cash (used in) provided by financing activities
  $ (58,127 )   $ 4,224     $ (62,351 )
 
                 
 
(1)   The cash used for repayment of debt increased $542.7 million due to our August 19, 2010 debt refinance and the payoff of $29.5 million in debt related to the Pet DRx acquisition. Proceeds from the issuance of long-term debt increased also due to the August 19, 2010 debt refinance. Payments for financing costs incurred in connection with the August 19, 2010 debt refinancing. See Note 6, Long-Term Obligations , of this quarterly report on Form 10-Q.
 
(2)   The distributions to noncontrolling interest partners represent cash payments to noncontrolling interest partners for their portion of the partnerships’ excess cash.
 
(3)   The number of stock option exercises has decreased in comparison to the prior year as the prior year amount was impacted by the expiration of certain stock option grants.
 
(4)   The stock repurchases for the nine months ended September 30, 2010 and September 30, 2009 represents payments for employee stock delivered at vesting to pay for income taxes owed by the employee.
      Future Contractual Cash Requirements
          The following table sets forth material changes from the amounts reported in our 2009 Form 10-K to our scheduled principal, interest and other contractual cash obligations due by us for each of the years indicated as of September 30, 2010 (in thousands):
                                         
    Payment due by period  
            Less than     1-3     3-5     More than  
    Total     1 year     years     years     5 years  
Contractual Obligations:
                                       
Long-term debt
  $ 500,000     $ 25,000     $ 100,000     $ 375,000     $  
Variable cash interest expense Term A (1)
    52,947       12,315       32,630       8,002        
Other long-term liabilities (2)
    31,097       2,940       5,609       4,937       17,611  
 
                             
 
  $ 584,044     $ 40,255     $ 138,239     $ 387,939     $ 17,611  
 
                             
 
(1)   The interest payments on our variable-rate senior term notes are based on rates effective as of September 30, 2010.
 
(2)   Includes future payments under our Supplemental Executive Retirement Program and Consulting Agreements.

32


Table of Contents

      Off-Balance-Sheet Financing Arrangements
          Other than operating leases, as of September 30, 2010 we do not have any off-balance-sheet financing arrangements.
      Interest Rate Swap Agreements
          As of March 31, 2010, all of our interest rate swap agreements had expired. We did not enter into any new agreements during the quarters ended June 30, 2010 and September 30, 2010.
          In the future, we may enter into additional interest rate strategies. However, we have not yet determined what those strategies will be or their possible impact.
      Description of Indebtedness
           Senior Credit Facility
          At September 30, 2010, we had $500 million principal amount outstanding under our senior term notes and no borrowings outstanding under our new $100 million revolving credit facility.
          We pay interest on our senior term notes based on the interest rate offered to our administrative agent on LIBOR plus a margin of 2.25% per annum.
          The senior term notes and the revolving credit facility mature in August 2015.
           Other Debt and Capital Lease Obligations
          At September 30, 2010, we had seller notes secured by assets of certain animal hospitals, unsecured debt and capital leases that totaled $30.4 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
          At September 30, 2010, we had borrowings of $500 million under our senior credit facility with fluctuating interest rates based on market benchmarks such as LIBOR. For our variable-rate debt, changes in interest rates generally do not affect the fair market value, but do impact earnings and cash flow. For every 1.0% increase in LIBOR, we will pay an additional $4.3 million in pre-tax interest expense on an annualized basis for our senior term notes. Conversely, for every 1.0% decrease in LIBOR we will save $4.3 million in pre-tax interest expense on an annualized basis.
          In the future, we may enter into interest rate strategies to mitigate our exposure to increasing interest rates as well as to maintain an appropriate mix of fixed-rate and variable-rate debt. However, we have not yet determined what those strategies may be or their possible impact.
ITEM 4. CONTROLS AND PROCEDURES
          We carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this report.
          We had previously disclosed a material weakness in our internal control over financial reporting in our quarterly report on Form 10-Q, filed on August 10, 2010 for the quarter ended June 30, 2010, relating to significant, material non-routine transactions. Our controls over such transactions require an analysis and review of any such transactions. We previously determined that we did not consistently perform such an analysis and review as required by our policy, specifically, our executive consulting agreements were not analyzed and reviewed as required by our policy.
          We believe that we have fully remediated the material weakness in our internal control over financial reporting with respect to analyzing and reviewing all significant and material non-routine transactions as of September 30, 2010. We performed an analysis and review on all non-routine transactions that were deemed significant and material, without exception, in accordance with our policy.

33


Table of Contents

          Based on this remediation and current evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our principal executive officer and principal financial officer concluded that, as of September 30, 2010, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
          During our most recent fiscal quarter, as mentioned previously we analyzed and reviewed all significant and material non-routine transactions such that our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) has been materially affected, or is reasonably likely to have been materially affected.
          Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur, or that all control issues and instances of fraud, if any, within the company have been detected.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
          We are not subject to any legal proceedings other than ordinarily routine litigation incidental to the conduct of our business.
ITEM 1A. RISK FACTORS
          There have been no material changes in our risk factors from those disclosed in our 2009 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
          None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
          None
ITEM 5. OTHER INFORMATION
          None
ITEM 6. EXHIBITS
     
10.1
  Credit and Guaranty Agreement, dated August 19, 2010, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc., as guarantors, various lenders from time to time partly thereto, Wells Fargo Bank N.A., as administrative agent, collateral agent, issuing bank and swing line lender, Bank of America, N.A., as syndication agent, and JP Morgan Chase Bank, N.A., U.S. Bank National Association, and Union Bank, N.A., as co-documentation agents. Portions of the schedules have been omitted pursuant to a request for confidential treatment.
 
   
10.2
  Second Amendment to Credit and Guaranty Agreement, dated as of June 1, 2007, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc. as guarantors, various lenders from time to time party thereto, Goldman Sachs Credit Partners, L.P., as joint lead arranger and sole syndication agent, and Wells Fargo Bank, N.A., as joint lead arranger and administrative agent.
 
   
10.3
  Credit Guaranty Agreement, dated May 16, 2005, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc., as guarantors, various lenders from time to time partly thereto, Goldman Sachs Credit Partners, L.P., as joint lead arranger, joint bookrunner and sole arranger, Wells Fargo

34


Table of Contents

     
 
  Bank, N.A., as joint lead arranger, joint bookrunner and administrative agent and Union Bank of California, N.A, as documentation agent. Portions of the schedules have been omitted pursuant to a request for confidential treatment.
 
   
10.4
  Amendment No. 1 to the Consulting Agreement by and between VCA Antech, Inc. and Neil Tauber. Original agreement furnished as Exhibit 10.7 on Form 8-K dated July 7, 2010.
 
   
10.5
  Amendment No. 1 to the Consulting Agreement by and between VCA Antech, Inc. and Tomas W. Fuller. Original agreement furnished as Exhibit 10.7 on Form 8-K dated July 7, 2010. 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
101.INS
  XBRL Instance Document*
 
   
101.SCH
  XBRL Taxonomy Extension Schema Document*
 
   
101.CAL
  XBRL Taxonomy Extension Calculation Linkbase*
 
   
101.DEF
  XBRL Taxonomy Definition Linkbase*
 
   
101.LAB
  XBRL Taxonomy Extension Label Linkbase*
 
   
101.PRE
  XBRL Taxonomy Extension Presentation Linkbase*
 
*   Furnished, not filed.

35


Table of Contents

SIGNATURE
          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 on November 8, 2010.
         
     
Date: November 8, 2010  By:   /s/ Tomas W. Fuller    
    Tomas W. Fuller   
    Chief Financial Officer   

36


Table of Contents

         
EXHIBIT INDEX
     
Exhibit No.   Description
 
10.1
  Credit and Guaranty Agreement, dated August 19, 2010, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc., as guarantors, various lenders from time to time partly thereto, Wells Fargo Bank N.A., as administrative agent, collateral agent, issuing bank and swing line lender, Bank of America, N.A., as syndication agent, and JP Morgan Chase Bank, N.A., U.S. Bank National Association, and Union Bank, N.A., as co-documentation agents. Portions of the schedules have been omitted pursuant to a request for confidential treatment.
 
   
10.2
  Second Amendment to Credit and Guaranty Agreement, dated as of June 1, 2007, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc. as guarantors, various lenders from time to time party thereto, Goldman Sachs Credit Partners, L.P., as joint lead arranger and sole syndication agent, and Wells Fargo Bank, N.A., as joint lead arranger and administrative agent.
 
   
10.3
  Credit Guaranty Agreement, dated May 16, 2005, by and among Vicar Operating, Inc., VCA Antech, Inc., certain subsidiaries of Vicar Operating, Inc., as guarantors, various lenders from time to time partly thereto, Goldman Sachs Credit Partners, L.P., as joint lead arranger, joint bookrunner and sole arranger, Wells Fargo Bank, N.A., as joint lead arranger, joint bookrunner and administrative agent and Union Bank of California, N.A, as documentation agent. Portions of the schedules have been omitted pursuant to a request for confidential treatment.
 
   
10.4
  Amendment No. 1 to the Consulting Agreement by and between VCA Antech, Inc. and Neil Tauber. Original agreement furnished as Exhibit 10.7 on Form 8-K dated July 7, 2010.
 
   
10.5
  Amendment No. 1 to the Consulting Agreement by and between VCA Antech, Inc. and Tomas W. Fuller. Original agreement furnished as Exhibit 10.7 on Form 8-K dated July 7, 2010. 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.1
  Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Exhibit 10.1
CREDIT AND GUARANTY AGREEMENT
dated as of August 19, 2010
among
VICAR OPERATING, INC.,
VCA ANTECH, INC.,
CERTAIN SUBSIDIARIES OF COMPANY,
as Guarantors,
VARIOUS LENDERS,
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent, Collateral Agent, Issuing Bank and Swing Line Lender,
BANK OF AMERICA, N.A.,
as Syndication Agent
and
JPMORGAN CHASE BANK, N.A. ,
U.S. BANK NATIONAL ASSOCIATION , and
UNION BANK, N.A. ,
as Co-Documentation Agents
 
$600,000,000 Senior Secured Credit Facilities
 
WELLS FARGO SECURITIES, LLC and BANC OF AMERICA SECURITIES LLC,
as Joint Lead Arrangers and Joint Lead Bookrunners

 


 

TABLE OF CONTENTS
             
        Page
 
           
SECTION 1. DEFINITIONS AND INTERPRETATION     2  
 
           
1.1
  Definitions     2  
1.2
  Accounting Terms     30  
1.3
  Interpretation, etc.     31  
 
           
SECTION 2. LOANS     31  
 
           
2.1
  Closing Date Term Loans     31  
2.2
  Revolving Loans     32  
2.3
  Swing Line Loans     33  
2.4
  Pro Rata Shares; Availability of Funds     35  
2.5
  Use of Proceeds     36  
2.6
  Evidence of Debt; Register; Lenders’ Books and Records; Notes     36  
2.7
  Interest on Loans     37  
2.8
  Conversion/Continuation     39  
2.9
  Default Interest     39  
2.10
  Fees     39  
2.11
  Scheduled Payments     40  
2.12
  Voluntary Prepayments/Commitment Reductions     41  
2.13
  Mandatory Prepayments/Commitment Reductions     42  
2.14
  Application of Prepayments/Reductions     44  
2.15
  General Provisions Regarding Payments     45  
2.16
  Ratable Sharing     46  
2.17
  Making or Maintaining Eurodollar Rate Loans     47  
2.18
  Increased Costs; Capital Adequacy     48  
2.19
  Taxes; Withholding, etc     50  
2.20
  Obligation to Mitigate     52  
2.21
  Defaulting Lenders     52  
2.22
  Removal or Replacement of a Lender     53  
2.23
  Issuance of Letters of Credit and Purchase of Participations Therein     54  
2.24
  Incremental Facilities     58  
 
           
SECTION 3. CONDITIONS PRECEDENT     60  
 
           
3.1
  Closing Date     60  
3.2
  Conditions to Each Credit Extension     63  
 
           
SECTION 4. REPRESENTATIONS AND WARRANTIES     64  
 
           
4.1
  Organization; Requisite Power and Authority; Qualification     64  
4.2
  Capital Stock and Ownership     64  
4.3
  Due Authorization     64  
4.4
  No Conflict     64  

i


 

             
        Page
 
           
4.5
  Governmental Consents     65  
4.6
  Binding Obligation     65  
4.7
  Historical Financial Statements     65  
4.8
  [Reserved]     65  
4.9
  No Material Adverse Change     65  
4.10
  No Restricted Junior Payments     65  
4.11
  Adverse Proceedings, etc     65  
4.12
  Payment of Taxes     66  
4.13
  Properties     66  
4.14
  Environmental Matters     66  
4.15
  No Defaults     67  
4.16
  Governmental Regulation     67  
4.17
  Margin Stock     67  
4.18
  Employee Matters     67  
4.19
  Employee Benefit Plans     68  
4.20
  Certain Fees     68  
4.21
  Solvency     68  
4.22
  [Reserved]     68  
4.23
  Subordination     68  
4.24
  Compliance with Statutes, etc     69  
4.25
  Disclosure     69  
4.26
  U.S. Foreign Corrupt Practices Act and OFAC     69  
 
           
SECTION 5. AFFIRMATIVE COVENANTS     69  
 
           
5.1
  Financial Statements and Other Reports     69  
5.2
  Existence     73  
5.3
  Payment of Taxes and Claims     73  
5.4
  Maintenance of Properties     73  
5.5
  Insurance     73  
5.6
  Inspections     74  
5.7
  Lenders Meetings     74  
5.8
  Compliance with Laws     74  
5.9
  Environmental     74  
5.10
  Subsidiaries     76  
5.11
  Mortgages on Material Real Estate Assets     76  
5.12
  Public Lenders     77  
5.13
  Further Assurances     78  
5.14
  Post-Closing Covenant     78  
 
           
SECTION 6. NEGATIVE COVENANTS     78  
 
           
6.1
  Indebtedness     78  
6.2
  Liens     80  
6.3
  Equitable Lien     82  
6.4
  No Further Negative Pledges     82  
6.5
  Restricted Junior Payments     82  

ii


 

             
        Page
 
           
6.6
  Restrictions on Subsidiary Distributions     84  
6.7
  Investments     84  
6.8
  Financial Covenants     86  
6.9
  Fundamental Changes; Disposition of Assets; Acquisitions     87  
6.10
  Disposal of Subsidiary Interests     88  
6.11
  Sales and Lease-Backs     88  
6.12
  Transactions with Shareholders and Affiliates     88  
6.13
  Conduct of Business     89  
6.14
  Permitted Activities of Holdings     89  
6.15
  Permitted Partially-Owned Subsidiaries     89  
6.16
  Amendments or Waivers with respect to Subordinated Indebtedness and Permitted Unsecured Indebtedness     89  
6.17
  Designation of “Senior Indebtedness”     89  
6.18
  Fiscal Year     90  
 
           
SECTION 7. GUARANTY     90  
 
           
7.1
  Guaranty of the Obligations     90  
7.2
  Contribution by Guarantors     90  
7.3
  Payment by Guarantors     91  
7.4
  Liability of Guarantors Absolute     91  
7.5
  Waivers by Guarantors     93  
7.6
  Guarantors’ Rights of Subrogation, Contribution, etc     93  
7.7
  Subordination of Other Obligations     94  
7.8
  Continuing Guaranty     94  
7.9
  Authority of Guarantors or Company     94  
7.10
  Financial Condition of Company     94  
7.11
  Bankruptcy, etc     95  
7.12
  Discharge of Guaranty Upon Sale of Guarantor     95  
 
           
SECTION 8. EVENTS OF DEFAULT     96  
 
           
8.1
  Events of Default     96  
 
           
SECTION 9. AGENTS     98  
 
           
9.1
  Appointment of Agents     98  
9.2
  Powers and Duties     99  
9.3
  General Immunity     99  
9.4
  Agents Entitled to Act as Lender     101  
9.5
  Lenders’ Representations, Warranties and Acknowledgment     101  
9.6
  Right to Indemnity     101  
9.7
  Successor Administrative Agent, Collateral Agent and Swing Line Lender     102  
9.8
  Collateral Documents and Guaranty     103  

iii


 

             
        Page
 
           
SECTION 10. MISCELLANEOUS     104  
 
           
10.1
  Notices     104  
10.2
  Expenses     105  
10.3
  Indemnity     106  
10.4
  Set-Off     106  
10.5
  Amendments and Waivers     107  
10.6
  Successors and Assigns; Participations     109  
10.7
  Independence of Covenants     113  
10.8
  Survival of Representations, Warranties and Agreements     113  
10.9
  No Waiver; Remedies Cumulative     113  
10.10
  Marshalling; Payments Set Aside     113  
10.11
  Severability     113  
10.12
  Obligations Several; Independent Nature of Lenders’ Rights     113  
10.13
  Entire Agreement     114  
10.14
  Headings     114  
10.15
  APPLICABLE LAW     114  
10.16
  CONSENT TO JURISDICTION     114  
10.17
  WAIVER OF JURY TRIAL     115  
10.18
  Confidentiality     115  
10.19
  Usury Savings Clause     116  
10.20
  Counterparts     116  
10.21
  Electronic Execution of Assignments     116  
10.22
  USA PATRIOT Act     116  
10.23
  No Fiduciary Duty     117  

iv


 

         
APPENDICES:
  A-1   Closing Date Term Loan Commitments
 
  A-2   Revolving Loan Commitments
 
  B   Notice Addresses
 
       
SCHEDULES:
  1.1   Existing Permitted Partially-Owned Subsidiaries
 
  4.1   Jurisdictions of Organization
 
  4.2   Capital Stock and Ownership
 
  4.13   Real Estate Assets
 
  5.14   Post-Closing Items
 
  6.1   Certain Indebtedness
 
  6.2   Certain Liens
 
  6.7   Certain Investments
 
       
EXHIBITS:
  A-1   Funding Notice
 
  A-2   Conversion/Continuation Notice
 
  A-3   Issuance Notice
 
  B-1   Term Loan Note
 
  B-2   Revolving Loan Note
 
  B-3   Swing Line Note
 
  C   Compliance Certificate
 
  D   [Reserved]
 
  E   Assignment Agreement
 
  F   Certificate Re Non-bank Status
 
  G-1   Closing Date Certificate
 
  G-2   Solvency Certificate
 
  H   Counterpart Agreement
 
  I   [Reserved]
 
  J   Mortgage
 
  K   Form of Permitted Seller Note
 
  L   Joinder Agreement

v


 

CREDIT AND GUARANTY AGREEMENT
     This CREDIT AND GUARANTY AGREEMENT , dated as of August 19, 2010, is entered into by and among VICAR OPERATING, INC ., a Delaware corporation ( “Company” ), VCA ANTECH, INC. , a Delaware corporation ( “Holdings” ), CERTAIN SUBSIDIARIES OF COMPANY , as Guarantors, the Lenders party hereto from time to time, WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), as Administrative Agent (together with its permitted successors in such capacity, “Administrative Agent” ), Collateral Agent (together with its permitted successors in such capacity, “Collateral Agent” ), Issuing Bank and Swing Line Lender, BANK OF AMERICA, N.A. ( “Bank of America” ), as Syndication Agent (in such capacity, “Syndication Agent” ), and JPMORGAN CHASE BANK, N.A. , U.S. BANK NATIONAL ASSOCIATION and UNION BANK, N.A. , as Co-Documentation Agents (in such capacity, “ Co-Documentation Agents ”).
RECITALS:
      WHEREAS , capitalized terms used in these Recitals shall have the respective meanings set forth for such terms in Section 1.1 hereof;
      WHEREAS , Company, Holdings, Guarantors, certain financial institutions and other persons (the “Existing Lenders” ), Goldman Sachs Credit Partners L.P., as joint lead arranger, joint bookrunner and sole syndication agent, and Wells Fargo, as joint lead arranger, joint bookrunner, administrative agent and collateral agent, are parties to that certain Credit and Guaranty Agreement dated as of May 16, 2005 (as heretofore amended, supplemented or otherwise modified, the “Existing Credit Agreement” ), pursuant to which the Existing Lenders have extended certain credit facilities to Company;
      WHEREAS , Company, Holdings, Guarantors, Wells Fargo and the Lenders party hereto agree to enter into this Credit and Guaranty Agreement (as amended, restated, modified or supplemented from time to time, this “Agreement” ) to extend certain credit facilities to Company hereunder, the proceeds of which that are funded on the Closing Date to be used (i) to refinance in full the Existing Credit Agreement, (ii) to pay Transaction Costs and (iii) for working capital and other general corporate purposes (including Permitted Acquisitions from time to time after the Closing Date);
      WHEREAS , Company has agreed to secure all of its Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on certain of its assets, including a pledge of all of the Capital Stock of each of its Domestic Subsidiaries and 65% of all the Capital Stock of each of its Foreign Subsidiaries; and
      WHEREAS , Guarantors have agreed to guarantee the obligations of Company hereunder and to secure their respective Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on certain of their respective assets, including a pledge of all of the Capital Stock in each of their respective Domestic Subsidiaries (including Company) and 65% of all the Capital Stock in each of their respective Foreign Subsidiaries;
      NOW, THEREFORE , in consideration of the premises and the agreements, provisions and covenants herein contained the parties hereto agree as follows:

 


 

SECTION 1. DEFINITIONS AND INTERPRETATION
      1.1       Definitions . The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings:
      “Adjusted Eurodollar Rate” means, for any Interest Rate Determination Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per annum obtained by dividing (and rounding upward to the next whole multiple of 1/100 of 1%) (i)(a) the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate which appears on the page of the Reuters Screen which displays an average British Bankers Association Interest Settlement Rate (such page currently being LIBOR01 page) for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (b) in the event the rate referenced in the preceding clause (a) does not appear on such page or service or if such page or service shall cease to be available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate on such other page or other service which displays an average British Bankers Association Interest Settlement Rate for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (c) in the event the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the offered quotation rate to first class banks in the London interbank market by Wells Fargo for deposits (for delivery on the first day of the relevant period) in Dollars of amounts in same day funds comparable to the principal amount of the applicable Loan of Administrative Agent, in its capacity as a Lender, for which the Adjusted Eurodollar Rate is then being determined with maturities comparable to such period as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, by (ii) an amount equal to (a) one minus (b) the Applicable Reserve Requirement.
      “Administrative Agent” as defined in the preamble hereto.
      “Adverse Proceeding” means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of Holdings or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), whether pending or, to the knowledge of Holdings or any of its Subsidiaries, threatened in writing against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries.
      “Affected Lender” as defined in Section 2.17(b).
      “Affected Loans” as defined in Section 2.17(b).
      “Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, control (including, with correlative meanings, the terms controlling , controlled by and under common control with ), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Securities having ordinary voting power for the election of

2


 

directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.
      “Agent” means each of Lead Arrangers, Syndication Agent, Administrative Agent and Collateral Agent.
      “Aggregate Amounts Due” as defined in Section 2.16.
      “Aggregate Payments” as defined in Section 7.2.
      “Agreement” as defined in the Preamble hereto.
      “Applicable Margin’’ and “Applicable Revolving Commitment Fee Percentage’’ mean (i) with respect to Eurodollar Rate Loans, (a) from the Closing Date until the date of delivery of the Compliance Certificate and the financial statements for the period ending March 31, 2011, a percentage, per annum, determined by reference to the following table as if the Leverage Ratio then in effect were in Level III below; and (b) thereafter, a percentage, per annum, determined by reference to the Leverage Ratio in effect from time to time as set forth below:
                     
                Applicable Revolving
        Applicable Margin for   Commitment Fee
Level   Leverage Ratio   Eurodollar Rate Loans   Percentage
I
  > 2.75:1.00     2.75 %     0.50 %
II
  < 2.75:1.00 and > 2.25:1.00     2.50 %     0.50 %
III
  < 2.25:1.00 and > 1.75:1.00     2.25 %     0.50 %
IV
  < 1.75:1.00 and > 1.25:1.00     2.00 %     0.50 %
V
  < 1.25:1.00     1.75 %     0.375 %
and (ii) with respect to Swing Line Loans and other Base Rate Loans, an amount equal to (a) the Applicable Margin for Eurodollar Rate Loans as set forth in clause (i)(a) or (i)(b) above, as applicable, minus (b) 1.00% per annum and (iii) with respect to the Applicable Revolving Commitment Fee Percentage, a percentage, per annum, determined by reference to the Leverage Ratio in effect from time to time as set forth in the table above. No change in the Applicable Margin or the Applicable Revolving Commitment Fee Percentage shall be effective until three Business Days after the date on

3


 

which Administrative Agent shall have received the applicable financial statements and a Compliance Certificate pursuant to Section 5.1(d) calculating the Leverage Ratio. At any time Company has not submitted to Administrative Agent the applicable information as and when required under Section 5.1(d), the Applicable Margin and the Applicable Revolving Commitment Fee Percentage shall be determined as if the Leverage Ratio were in Level I above. Within one Business Day of receipt of the applicable information under Section 5.1(d), Administrative Agent shall give each Lender notice in accordance with Section 10.1 of the Applicable Margin and the Applicable Revolving Commitment Fee Percentage in effect from such date. In the event that any financial statement or certificate delivered pursuant to Section 5.1 is shown to be inaccurate (at a time when this Agreement is in effect and unpaid Obligations under this Agreement are outstanding (other than indemnities and other contingent obligations not yet due and payable), and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin for any period (an “ Applicable Period ”) than the Applicable Margin applied for such Applicable Period, then (i) Company shall immediately deliver to Administrative Agent a correct certificate required by Section 5.1 for such Applicable Period, (ii) if such inaccuracy would lead to the application of a higher Applicable Margin, the Applicable Margin shall be increased to such higher Applicable Margin and (iii) Company shall immediately pay to Administrative Agent the accrued additional interest owing as a result of such increased Applicable Margin for such Applicable Period. Nothing in this paragraph shall limit the right of Administrative Agent or any Lender under Section 2.9 or Section 8.
      “Applicable Reserve Requirement” means, at any time, for any Eurodollar Rate Loan, the maximum rate, expressed as a decimal, at which reserves (including, without limitation, any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against Eurocurrency liabilities (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the applicable Adjusted Eurodollar Rate or any other interest rate of a Loan is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans. A Eurodollar Rate Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on Eurodollar Rate Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement.
      “Asset Sale” means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than Company or a Guarantor Subsidiary), in one transaction or a series of transactions, of all or any part of Holdings’ or any of its Subsidiaries’ businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Capital Stock of any of Holdings’ Subsidiaries ( provided , however , that solely for purposes of Section 2.13(a), such sale of Capital Stock shall not be considered an Asset Sale), other than (i) inventory, equipment or other assets sold or leased in the ordinary course of business, and (ii) sales of other assets for aggregate consideration of less than $5,000,000 with respect to any transaction or series of related transactions; provided , further that (x) the transfer or issuance of any Capital Stock of any Domestic Subsidiary of Company to a Person other than a Credit Party in

4


 

connection with a Permitted Subsidiary Dropdown shall not constitute an Asset Sale for purposes of this Agreement to the extent that the aggregate value of such transfer as determined by Company in good faith does not exceed $5,000,000 and (y) to the extent that such aggregate value exceeds $5,000,000, the aggregate value of such transfer in excess of $5,000,000 shall constitute an Asset Sale only to the extent of the aggregate value of such transfer in excess of $5,000,000.
      “Assignment Agreement” means an Assignment Agreement substantially in the form of Exhibit E, with such amendments or modifications as may be approved by Administrative Agent.
      “Assignment Effective Date” as defined in Section 10.6(b).
      “Authorized Officer” means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), and such Person’s chief financial officer or treasurer.
      “Bankruptcy Code” means Title 11 of the United States Code entitled Bankruptcy, as now and hereafter in effect, or any successor statute.
      “Base Rate” means, for any day, a rate per annum equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus 1 / 2 of 1% and (iii) the Adjusted Eurodollar Rate for a one month interest period commencing on such day plus 1.0%. Any change in the Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted Eurodollar Rate for a one month interest period shall be effective on the effective day of such change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted Eurodollar Rate for a one month interest period, respectively.
      “Base Rate Loan” means a Loan bearing interest at a rate determined by reference to the Base Rate.
      “Beneficiary” means each Agent, Issuing Bank, Lender and Lender Counterparty.
      “Business Day” means (i) any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York and/or California or is a day on which banking institutions located in either such state are authorized or required by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, the term “Business Day” shall mean any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market.
      “Capital Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person.
      “Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.

5


 

      “Cash” means money, currency or a credit balance in any demand or Deposit Account.
      “Cash Equivalents” means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (iv) certificates of deposit or bankers’ acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least adequately capitalized (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) through (iv) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody’s; and (vi) guaranteed investment contracts (a) that are provided by a provider that maintains a short-term certificate of deposit rating of at least A-1 from S&P or the equivalent from Moody’s and, if the term of such investment contract is one year or more, a long-term certificate of deposit rating of at least A from S&P or the equivalent from Moody’s and (b) that are redeemable at no less than par on not more than seven days’ notice to the provider.
      “Certificate re Non-Bank Status” means a certificate substantially in the form of Exhibit F.
      “Change of Control” means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or more related transactions, of all or substantially all of the properties or assets of Holdings and its Subsidiaries taken as a whole, or of Company and it Subsidiaries taken as a whole, to any Person or person (as such term is used in Section 13(d)(3) of the Exchange Act); (ii) the adoption of a plan relating to the liquidation or dissolution of Holdings or Company; or (iii) the consummation of any transaction (including without limitation, any merger or consolidation), as a result of which (y) Holdings ceases to own directly 100% of the Capital Stock of Company or (z) any Person or group (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), shall have acquired, directly or indirectly, beneficial ownership of 35% or more on a fully diluted basis of the aggregate voting interest attributable to all outstanding Capital Stock of Holdings.
      “Class” means (i) with respect to Lenders, each of the following classes of Lenders: (a) Lenders having Closing Date Term Loan Exposure; (b) Lenders having Revolving Exposure (including Swing Line Lender), and (c) Lenders having New Term Loan Exposure of a particular Series and (ii) with respect to Loans, each of the following classes of Loans: (a) Closing Date Term Loans; (b) Revolving Loans (including Swing Line Loans); and (c) each Series of New Term Loans.
      “Closing Date” means the date upon which the conditions set forth in Section 3.1 are satisfied.

6


 

      “Closing Date Certificate” means the Closing Date Certificate substantially in the form of Exhibit G-1.
      “Closing Date Term Loan” means a Term Loan made by a Lender to Company pursuant to Section 2.1(a).
      “Closing Date Term Loan Commitment” means the commitment of a Lender to make or otherwise fund a Closing Date Term Loan and “Closing Date Term Loan Commitments” means such commitments of all Lenders in the aggregate. The amount of each Lender’s Closing Date Term Loan Commitment, if any, is set forth on Appendix A-1 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Closing Date Term Loan Commitments as of the Closing Date is $500,000,000.
      “Closing Date Term Loan Exposure” means, with respect to any Lender, as of any date of determination, the outstanding principal amount of the Closing Date Term Loans of such Lender; provided , at any time prior to the making of the Closing Date Term Loans, the Closing Date Term Loan Exposure of any Lender shall be equal to such Lender’s Closing Date Term Loan Commitment.
      “Closing Date Term Loan Maturity Date” means the earlier of (i) August 19, 2015 and (ii) the date that all Closing Date Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.
      “Co-Documentation Agents” as defined in the preamble hereto.
      “Collateral” means, collectively, all of the real, personal and mixed property (including Capital Stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations.
      “Collateral Agent” means the institution serving as such under the Collateral Documents.
      “Collateral Documents” means the Pledge and Security Agreement, the Mortgages (if any) and all other instruments, documents and agreements delivered by any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to Collateral Agent, for the benefit of Secured Parties, a Lien on any real, personal or mixed property of that Credit Party as security for the Obligations.
      “Commitment” means any Revolving Commitment, Closing Date Term Loan Commitment or New Term Loan Commitment.
      “Commitment Letter” means that certain commitment letter dated as of July 16, 2010 among Company, the Lead Arrangers, the Administrative Agent and the Syndication Agent, as it may be amended, supplemented or otherwise modified from time to time.
      “Company” as defined in the preamble hereto.
     “ Company Materials ” as defined in Section 5.12.

7


 

      “Compliance Certificate” means a Compliance Certificate substantially in the form of Exhibit C.
      “Consolidated Adjusted EBITDA” means, for any period, an amount determined for Company and its Subsidiaries on a consolidated basis equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Net Income, (b) Consolidated Interest Expense, (c) provisions for taxes based on income, (d) total depreciation expense, (e) total amortization expense, (f) non-cash stock based compensation reducing Consolidated Net Income, (g) other non-Cash items, including write-offs of assets, reducing Consolidated Net Income (excluding any such non-Cash item to the extent that it represents an accrual or reserve for potential Cash items in any future period or amortization of a prepaid Cash item that was paid in a prior period but, notwithstanding anything to the contrary herein, including without limitation, reserves for lease expense and other charges and expenses related to the closure of hospitals to the extent not paid in cash), and (h) to the extent deducted in calculating Consolidated Net Income, Transaction Costs, minus (ii) non-Cash items increasing Consolidated Net Income for such period (excluding any such non-Cash item to the extent it represents the reversal of an accrual or reserve for potential Cash item in any prior period).
      “Consolidated Capital Expenditures” means, for any period, the aggregate of the expenditures of Company and its Subsidiaries during such period determined on a consolidated basis that, in accordance with GAAP, are or should be included in “purchase of property and equipment” or similar items reflected in the consolidated statement of cash flows of Company and its Subsidiaries excluding any acquisition of assets that constitutes a Permitted Acquisition; provided, however, that notwithstanding any of the foregoing to the contrary, Consolidated Capital Expenditures shall include expenditures of Company and its Subsidiaries with respect to assets constituting a fee interest in real property acquired by Company or its Subsidiaries other than in connection with a Permitted Acquisition.
      “Consolidated Cash Interest Expense” means, for any period, Consolidated Interest Expense for such period, excluding any amounts not payable in Cash.
      “Consolidated Fixed Charges” means, for any period, the sum, without duplication, of the amounts determined for Company and its Subsidiaries on a consolidated basis equal to (i) Consolidated Cash Interest Expense, (ii) scheduled payments of principal (other than the principal payment due on the Closing Date Term Loan Maturity Date and on any New Term Loan Maturity Date) on Consolidated Total Debt, (iii) Consolidated Capital Expenditures and (iv) provisions for current cash taxes based on income with respect to such period.
      “Consolidated Interest Expense” means, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and net costs under Interest Rate Agreements, but excluding, however, any amounts referred to in Sections 2.10(e) and (f) payable on or before the Closing Date.
      “Consolidated Net Income” means, for any period, (i) the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period

8


 

determined in conformity with GAAP, minus (ii)(a) the income of any Person (other than a Subsidiary of Company) in which any other Person (other than Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Company or any of its Subsidiaries by such Person during such period, (b) the income (or plus the loss) of any Person accrued prior to the date it becomes a Subsidiary of Company or is merged into or consolidated with Company or any of its Subsidiaries or that Person’s assets are acquired by Company or any of its Subsidiaries, (c) the income of any Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (d) any after-tax gains (or plus any after-tax losses) attributable to Asset Sales or returned surplus assets of any Pension Plan, and (e) (to the extent not included in clauses (a) through (d) above) any net extraordinary gains (or plus any net extraordinary losses).
      “Consolidated Total Debt” means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness (other than items described in clauses (iv), (v) and (x) thereof) of Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP.
      “Contractual Obligation” means, as applied to any Person, any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.
      “Contributing Guarantors” as defined in Section 7.2.
      “Conversion/Continuation Date” means the effective date of a continuation or conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice.
      “Conversion/Continuation Notice” means a Conversion/Continuation Notice substantially in the form of Exhibit A-2.
      “Counterpart Agreement” means a Counterpart Agreement substantially in the form of Exhibit H delivered by a Credit Party pursuant to Section 5.10.
      “Credit Date” means the date of a Credit Extension.
      “Credit Document” means any of this Agreement, the Notes, if any, the Collateral Documents, any documents or certificates executed by Company in favor of Issuing Bank relating to Letters of Credit, and all other documents, instruments or agreements executed and delivered by a Credit Party for the benefit of any Agent, Issuing Bank or Lender (excluding Hedge Agreements and Specified Cash Management Agreements).
    “Credit Extension” means the making of a Loan or the issuing of a Letter of Credit.
      “Credit Party” means each Person (other than any Agent, Issuing Bank, Swing Line Lender, any Lender or any Lender Counterparty or any other representative of any thereof) from time to time party to a Credit Document.

9


 

      “Currency Agreement” means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement, each of which is for the purpose of hedging the projected foreign currency risk associated with Holdings’ and its Subsidiaries’ operations and not for speculative purposes.
      “Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.
      “Default Excess” means, with respect to any Defaulting Lender, the excess, if any, of such Defaulting Lender’s Pro Rata Share of the aggregate outstanding principal amount of Loans of all Lenders (calculated as if all Defaulting Lenders (including such Defaulting Lender) had funded all of their respective Defaulted Loans) over the aggregate outstanding principal amount of all Loans of such Defaulting Lender.
      “Default Period” means, (x) with respect to any Funds Defaulting Lender, the period commencing on the date of the applicable Funding Default and ending on the earliest of the following dates: (i) the date on which all Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (ii) the date on which (a) the Default Excess with respect to such Defaulting Lender shall have been reduced to zero (whether by the funding by such Defaulting Lender of any Defaulted Loans of such Defaulting Lender or by the non-pro rata application of any voluntary or mandatory prepayments of the Loans in accordance with the terms of Section 2.12, Section 2.13 or Section 2.14 or by a combination thereof) and (b) such Defaulting Lender shall have delivered to Company and Administrative Agent a written reaffirmation of its intention to honor its obligations hereunder with respect to its Commitments, and (iii) the date on which Company, Administrative Agent and Requisite Lenders waive all Funding Defaults of such Defaulting Lender in writing; and (y) with respect to any Insolvency Defaulting Lender, the period commencing on the date of the applicable Lender Insolvency Default and ending on the earliest of the following dates: (i) the date on which all Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable and (ii) the date that such Defaulting Lender ceases to hold any portion of the Loans or Commitments.
      “Defaulted Loan” as defined in Section 2.21.
      “Defaulting Lender” as defined in Section 2.21.
      “Deposit Account” means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.
      “Dollars” and the sign “$” mean the lawful money of the United States of America.
      “Domestic Subsidiary” means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia.
      “Earn-Out Obligations” means any unsecured contingent liability of Holdings or any of its Subsidiaries owed to any seller in connection with a Permitted Acquisition that (a) constitutes a portion of the purchase price for such Permitted Acquisition but is not an amount certain on the date of incurrence thereof and is not subject to any right of acceleration by such seller and (b) is only payable

10


 

upon the achievement of performance standards by the Person or other property acquired in such Permitted Acquisition and in an amount based upon such achievement provided that the formula for determining the aggregate amount of such liability shall be fixed at the date of such Permitted Acquisition.
      “Eligible Assignee” means (i) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (ii) any commercial bank, insurance company, investment or mutual fund or other entity that is an accredited investor (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses; provided , Company, any Affiliate of Company or any natural person shall not be an Eligible Assignee.
      “Employee Benefit Plan” means any employee benefit plan as defined in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to by, or required to be contributed by, Holdings or any of its Subsidiaries or, to the extent that Holdings or any of its Subsidiaries would be liable under ERISA in respect thereof, any of their respective ERISA Affiliates.
      “Enumerated Costs” as defined in the definition of “Net Asset Sale Proceeds”.
      “Environmental Claim” means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity; or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment.
      “Environmental Laws” means any and all current or future foreign or domestic, federal or state (or any subdivision of either of them), statutes, ordinances, orders, rules, regulations, guidance documents, judgments, Governmental Authorizations, or any other requirements of Governmental Authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity; (ii) the generation, use, storage, transportation or disposal of Hazardous Materials; or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Holdings or any of its Subsidiaries or any Facility.
      “Environmental Reports” means any reports and other information, in form scope and substance satisfactory to the Administrative Agent regarding environmental matters relating to the Facilities.
      “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.
      “ERISA Affiliate” means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of

11


 

which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Holdings or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Holdings or any such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Holdings or such Subsidiary and with respect to liabilities arising after such period for which Holdings or such Subsidiary could be liable under the Internal Revenue Code or ERISA.
      “ERISA Event” means (i) a “reportable event” within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Sections 412 or 430 of the Internal Revenue Code or Sections 302 or 303 of ERISA with respect to any Pension Plan (whether or not waived in accordance with Section 412(c) of the Internal Revenue Code or Section 302(c) of ERISA) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency within the meaning of Title IV of ERISA, or that it intends to terminate or has terminated pursuant to Title IV of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 430(k) of the Internal Revenue Code or Section 303(k) of ERISA.
      “Eurodollar Rate Loan” means a Loan bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate.
      “Event of Default” means each of the conditions or events set forth in Section 8.1.

12


 

      “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.
      “Existing Credit Agreement” as defined in the recitals hereto.
      “Existing Lenders” as defined in the recitals hereto.
      “Facility” means any real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Holdings or any of its Subsidiaries or any of their respective predecessors or Affiliates.
      “Fair Share Contribution Amount” as defined in Section 7.2.
      “Fair Share” as defined in Section 7.2.
      “Fair Share Shortfall” as defined in Section 7.2.
      “Federal Funds Effective Rate” means for any day, the rate per annum (expressed, as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided , (i) if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average rate charged to Administrative Agent, in its capacity as a lender, on such day on such Federal funds transactions as determined by Administrative Agent.
      “Financial Officer Certification” means, with respect to the financial statements for which such certification is required, the certification of the chief financial officer of Holdings that such financial statements fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments.
      “Financial Plan” as defined in Section 5.1(i).
      “First Priority” means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is the only Lien to which such Collateral is subject, other than Permitted Liens.
      “Fiscal Quarter” means a fiscal quarter of any Fiscal Year.
      “Fiscal Year” means the fiscal year of Holdings and its Subsidiaries ending on December 31 of each calendar year.
      “Fixed Charge Coverage Ratio” means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period then ending, to (ii) Consolidated Fixed Charges for such four-Fiscal Quarter period.

13


 

      “Flood Hazard Property” means any Real Estate Asset subject to a Mortgage and located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards.
      “Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
      “Funding Default” as defined in Section 2.21.
      “Funding Guarantors” as defined in Section 7.2.
      “Funds Defaulting Lender” as defined in Section 2.21.
      “Funding Notice” means a notice substantially in the form of Exhibit A-1.
      “GAAP” means, subject to the limitations on the application thereof set forth in Section 1.2, United States generally accepted accounting principles in effect as of the date of determination thereof.
      “Governmental Acts” means any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority.
      “Governmental Authority” means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
      “Governmental Authorization” means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.
      “Grantor” as defined in the Pledge and Security Agreement.
      “Guaranteed Obligations” as defined in Section 7.1.
      “Guarantor” means each of Holdings and each Domestic Subsidiary of Holdings (other than Company and certain Permitted Partially-Owned Subsidiaries that do not provide a Guaranty).
      “Guarantor Subsidiary” means each Guarantor other than Holdings.
      “Guaranty” means the guaranty of each Guarantor set forth in Section 7.
      “Hazardous Materials” means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment.
      “Hazardous Materials Activity” means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession,

14


 

storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing.
      “Hedge Agreement” means an Interest Rate Agreement or a Currency Agreement entered into with a Lender Counterparty.
      “Highest Lawful Rate” means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.
      “Historical Financial Statements” means as of the Closing Date, (i) the audited financial statements of Holdings and its Subsidiaries, for the immediately preceding three Fiscal Years, consisting of balance sheets and the related consolidated statements of income, stockholders’ equity and cash flows for such Fiscal Years, and (ii) the unaudited financial statements of Holdings and its Subsidiaries as at the most recently ended Fiscal Quarter, consisting of a balance sheet and the related consolidated statements of income, stockholders’ equity and cash flows for the three-, six- or nine-month period, as applicable, ending on such date, and, in the case of clauses (i) and (ii), certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments.
      “Holdings” as defined in the preamble hereto.
      “Immaterial Subsidiary” for purposes of Section 8.1(f) and Section 8.1(g), shall mean one or more Subsidiaries of Holdings that, on a consolidated basis did not (i) for the most recently concluded Fiscal Year account for more than 3.0% of consolidated revenues of Holdings and its Subsidiaries and (ii) as of the last day of such Fiscal Year own more than 3.0% of the consolidated assets of Holdings and its Subsidiaries.
      “Increased Amount Date” as defined in Section 2.24.
      “Increased-Cost Lenders” as defined in Section 2.22.
      “Indebtedness” , as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money; (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA and ordinary course trade payables), which purchase price is (a) due more than six months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument; (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of

15


 

that Person; (vi) the face amount of any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another; (viii) any obligation of such Person the primary purpose or intent of which is to provide assurance to an obligee that the obligation of the obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof; (ix) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (b) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (a) or (b) of this clause (ix), the primary purpose or intent thereof is as described in clause (viii) above; and (x) obligations of such Person in respect of any exchange traded or over the counter derivative transaction, including, without limitation, any Interest Rate Agreement and Currency Agreement, whether entered into for hedging or speculative purposes; provided , in no event shall obligations under any Interest Rate Agreement and any Currency Agreements be deemed Indebtedness for any purpose under Section 6.8.
      “Indemnified Liabilities” means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties and claims (including Environmental Claims), and any and all reasonable and documented costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable and documented fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby (including the Lenders’ agreement to make Credit Extensions, the syndication of the credit facilities provided for herein or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty)); (ii) the Commitment Letter (and any fee letter related thereto); or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Holdings or any of its Subsidiaries.
      “Indemnitee” as defined in Section 10.3.
      “Insolvency Defaulting Lender” as defined in Section 2.21.
      “Installment” as defined in Section 2.11.

16


 

      “Installment Date” as defined in Section 2.11.
      “Interest Payment Date” means with respect to (i) any Loan that is a Base Rate Loan, the last Business Day of each March, June, September and December of each year, commencing on the first such date to occur after the Closing Date, and the final maturity date of such Loan; and (ii) any Loan that is a Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; provided , in the case of each Interest Period of longer than three months Interest Payment Date shall also include each date that is three months, or an integral multiple thereof, after the commencement of such Interest Period.
      “Interest Period” means, in connection with a Eurodollar Rate Loan, an interest period of one-, two-, three- or six-months, as selected by Company in the applicable Funding Notice or Conversion/Continuation Notice, (i) initially, commencing on the Credit Date or Conversion/Continuation Date thereof, as the case may be; and (ii) thereafter, commencing on the day on which the immediately preceding Interest Period expires; provided , (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clauses (c) and (d) of this definition, end on the last Business Day of a calendar month; (c) no Interest Period with respect to any portion of any Class of Term Loans shall extend beyond such Class’s Term Loan Maturity Date; and (d) no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Commitment Termination Date.
      “Interest Rate Agreement” means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement, each of which is for the purpose of hedging the projected interest rate exposure associated with Holdings’ and its Subsidiaries’ operations and not for speculative purposes.
      “Interest Rate Determination Date” means, with respect to any Interest Period, the date that is two Business Days prior to the first day of such Interest Period.
      “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute.
      “Investment” means (i) any direct or indirect purchase or other acquisition by Holdings or any of its Subsidiaries of, or of a beneficial interest in, any of the Securities of any other Person (other than Company or a Guarantor Subsidiary); (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Holdings from any Person (other than Holdings, Company or any Guarantor Subsidiary), of any Capital Stock of such Person; and (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Holdings or any of its Subsidiaries to any other Person (other than Holdings, Company or any Guarantor Subsidiary), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus

17


 

the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.
      “Issuance Notice” means an Issuance Notice substantially in the form of Exhibit A-3.
      “Issuing Bank” means Wells Fargo as Issuing Bank hereunder, together with its permitted successors and assigns in such capacity.
      “Joinder Agreement” means an agreement substantially in the form of Exhibit L.
      “Joint Venture” means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided , in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party.
      “Landlord Consent and Estoppel” means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, pursuant to which, among other things, the landlord consents to the granting of a Mortgage on such Leasehold Property by the Credit Party tenant, such Landlord Consent and Estoppel to be in form and substance acceptable to the Collateral Agent in its reasonable discretion, but in any event sufficient for the Collateral Agent to obtain a Title Policy with respect to such Mortgage.
      “Lead Arrangers” means Wells Fargo Securities, LLC and Banc of America Securities LLC.
      “Leasehold Property” means any leasehold interest of any Credit Party as lessee under any lease of real property, other than any such leasehold interest designated from time to time by Collateral Agent in its sole discretion as not being required to be included in the Collateral.
      “Lender” means each financial institution listed on the signature pages hereto as a Lender and any other Person that becomes a party hereto pursuant to an Assignment Agreement or a Joinder Agreement.
      “Lender Counterparty” means each Lender or any Affiliate of a Lender counterparty to a Hedge Agreement or a Specified Cash Management Arrangement (including any Person who is a Lender (and any Affiliate thereof) as of the Closing Date but subsequently, whether before or after entering into a Hedge Agreement or Specified Cash Management Arrangement, ceases to be a Lender), including, without limitation, each such Affiliate that enters into a joinder agreement with the Collateral Agent.
      “Lender Insolvency Default” as defined in Section 2.21.
      “Letter of Credit” means a commercial or standby letter of credit issued or to be issued by Issuing Bank pursuant to this Agreement.
      “Letter of Credit Sublimit” means the lesser of (i) $15,000,000 and (ii) the aggregate unused amount of the Revolving Commitments then in effect.
      “Letter of Credit Usage” means, as at any date of determination, the sum of (i) the maximum aggregate amount which is, or at any time thereafter may become, available for drawing under all

18


 

Letters of Credit then outstanding, and (ii) the aggregate amount of all drawings under Letters of Credit honored by Issuing Bank and not theretofore reimbursed by or on behalf of Company.
      “Leverage Ratio” means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Total Debt as of such day to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date (as determined in accordance with Section 6.8(f)).
      “Lien” means (i) any lien, claim, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities.
      “Liquidity Amount” means the sum of (i) cash of Company and its wholly-owned Domestic Subsidiaries as of such day that is uncommitted and, other than in favor of the Collateral Agent, unrestricted and unencumbered, and (ii) if the conditions to funding set forth in Section 3.2 could be met on such day, an amount equal to (x) the aggregate amount of the Revolving Commitments less (y) the Revolving Exposure, in each case as of such day after giving effect to the transaction(s) in connection with which the Liquidity Amount is being determined.
      “Loan” means a Closing Date Term Loan, a Revolving Loan, a Swing Line Loan or a New Term Loan.
      “Margin Stock” as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.
      “Material Adverse Effect” means a material adverse effect on (i) the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries, taken as a whole; (ii) the ability of the Credit Parties to fully and timely perform the Obligations, taking into consideration the Guaranty and the joint and several obligations of Guarantors in respect of the Guaranty; (iii) the legality, validity, binding effect or enforceability against the Credit Parties of the Credit Documents, taking into consideration the Guaranty and the joint and several obligations of Guarantors in respect of the Guaranty; (iv) the rights, remedies and benefits available to, or conferred upon, any Agent and any Lender or any Secured Party under the Credit Documents, taking into consideration the Guaranty and the joint and several obligations of Guarantors in respect of the Guaranty; or (v) the Collateral or the Collateral Agent’s Liens, on behalf of Secured Parties on the Collateral or the First Priority of such Liens.
      “Material Contract” means any contract or other arrangement to which Holdings or any of its Subsidiaries is a party (other than the Credit Documents) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect.
      “Material Real Estate Asset” means (i) (a) any fee owned Real Estate Asset having a fair market value in excess of $1,000,000 as of the date of the acquisition thereof and (b) all Leasehold Properties other than those with respect to which the aggregate payments under the term of the lease are less than $500,000 per annum or (ii) any Real Estate Asset that the Requisite Lenders have reasonably determined is material to the business, operations, properties, assets, condition (financial or

19


 

otherwise) or prospects of Holdings or any Subsidiary thereof, including Company and with respect to which the Administrative Agent has provided written notice to Company of such determination.
      “Moody’s” means Moody’s Investor Services, Inc.
      “Mortgage” means a Mortgage substantially in the form of Exhibit J, as it may be amended, restated, supplemented or otherwise modified from time to time to reflect such changes as Company and Administrative Agent may agree.
      “Mortgaged Property” as defined in Section 5.11.
      “Multiemployer Plan” means any Employee Benefit Plan which is a multiemployer plan as defined in Section 3(37) of ERISA.
      “NAIC” means The National Association of Insurance Commissioners, and any successor thereto.
      “Narrative Report” means, with respect to the financial statements for which such narrative report is required, a narrative report describing the operations of Holdings and its Subsidiaries in the form and to the extent prepared for presentation to senior management thereof for the applicable month, Fiscal Quarter or Fiscal Year and for the period from the beginning of the then current Fiscal Year to the end of such period to which such financial statements relate.
      “Net Asset Sale Proceeds” means, with respect to any Asset Sale, an amount equal to: (i) Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by Holdings or any of its Subsidiaries from such Asset Sale, minus (ii) any bona fide direct costs incurred in connection with such Asset Sale, including (a) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Asset Sale, (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale, (c) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Holdings or any of its Subsidiaries in connection with such Asset Sale and (d) payment of legal, broker or other fees and commissions (items (a)-(d) collectively, the “ Enumerated Costs ”).
      “Net Insurance/Condemnation Proceeds” means an amount equal to: (i) any Cash payments or proceeds received by Holdings or any of its Subsidiaries (a) under any casualty insurance policy in respect of a covered loss thereunder or (b) as a result of the taking of any assets of Holdings or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (ii)(a) any actual and reasonable costs incurred by Holdings or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Holdings or such Subsidiary in respect thereof, and (b) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (i)(b) of this definition, including any Enumerated Costs.
      “New Revolving Loan Commitments” as defined in Section 2.24.

20


 

      “New Revolving Lender” as defined in Section 2.24.
      “New Revolving Loans” as defined in Section 2.24.
      “New Term Loan Commitments” as defined in Section 2.24.
      “New Term Loan Exposure” means, with respect to any Lender, as of any date of determination, the outstanding principal amount of the New Term Loans of such Lender.
      “New Term Loan Lender” as defined in Section 2.24.
      “New Term Loan Maturity Date” means the date that New Term Loans of a Series shall become due and payable in full hereunder, as specified in the applicable Joinder Agreement, including by acceleration or otherwise.
      “New Term Loans” as defined in Section 2.24.
      “Non-US Lender” as defined in Section 2.19(c).
      “Note” means a Term Loan Note, a Revolving Loan Note or a Swing Line Note.
      “Notice” means a Funding Notice or a Conversion/Continuation Notice.
      “Obligations” means all obligations of every nature of each Credit Party from time to time owed to the Agents (including former Agents), the Lenders or any of them or their respective Affiliates and Lender Counterparties, under any Credit Document, Specified Cash Management Arrangement or Hedge Agreement (including, without limitation, with respect to a Specified Cash Management Arrangement or Hedge Agreement, obligations owed thereunder to any person who was a Lender or an Affiliate of a Lender at the time such Specified Cash Management Arrangement or Hedge Agreement was entered into), whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such Credit Party, would have accrued on any Obligation, whether or not a claim is allowed against such Credit Party for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Hedge Agreements, fees, expenses, indemnification or otherwise.
      “Obligee Credit Party” as defined in Section 7.7.
     “ OFAC ” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.
      “Organizational Documents” means (i) with respect to any corporation, its certificate or articles of incorporation, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended. In the event any term or condition of this Agreement or any other Credit Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such Organizational Document shall only be to a document of a type customarily certified by such governmental official.

21


 

     “ Patriot Act ” as defined in Section 3.1(s).
      “PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.
      “Pension Plan” means any Employee Benefit Plan, other than a Multiemployer Plan, that is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA.
      “Permitted Acquisition” means any acquisition by Company or any of its Subsidiaries, whether by purchase, merger or otherwise, of (y) all or substantially all of the assets of, or more than 50% of the Capital Stock of, or a business line or unit or a division of, any Person or (z) any additional portion, or all, of the Capital Stock of any Permitted Partially-Owned Subsidiary; provided,
                (i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom;
                (ii) [Reserved];
                (iii) all transactions in connection therewith shall be consummated, in all material respects, in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations;
                (iv) in the case of the acquisition of Capital Stock, (i) after giving effect to such acquisition, more than 50% of the Capital Stock (except for any such Securities in the nature of directors’ qualifying shares required pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed Subsidiary of Company in connection with such acquisition shall be owned by Company or a Guarantor Subsidiary thereof, (ii) in the case of acquisitions where Company owns more than 50% but less than 100% of such Subsidiary and such Subsidiary is a Domestic Subsidiary, Company shall designate such Subsidiary as a Permitted Partially-Owned Subsidiary, and (iii) Company shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of Company, each of the actions set forth in Sections 5.10 and/or 5.11 to the extent required thereby;
                (v) any Person or assets so acquired shall be located exclusively in the United States, Canada or the United Kingdom; provided that immediately after giving effect to any such Permitted Acquisition in Canada or the United Kingdom, Company’s Liquidity Amount shall be greater than or equal to $50,000,000;
                (vi) Holdings and its Subsidiaries shall be in compliance with the financial covenants set forth in Section 6.8 on a pro forma basis after giving effect to such acquisition as of the first day of the four quarter period ending on the last day of the Fiscal Quarter most recently ended (in accordance with Section 6.8(f));
                (vii) Company shall have delivered to Administrative Agent (A) at least five Business Days prior to such proposed acquisition, a Compliance Certificate evidencing compliance with Section 6.8 as required under clause (vi) above, together with all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with Section 6.8; provided, however, that Company shall not be required to comply with the provisions of this clause

22


 

(vii) with respect to an acquisition unless the consideration to be paid by Company and its Subsidiaries in respect of such acquisition is greater than $50,000,000;
                (viii) any Person or assets or division as acquired in accordance herewith shall be in a business or lines of business the same as, related, complementary or ancillary to, the business or lines of business in which Company and/or its Subsidiaries are engaged as of the Closing Date; and
                (ix) notwithstanding any of the foregoing to the contrary, “Permitted Acquisition” shall include any acquisition of any assets constituting a fee interest in real property in connection with such Permitted Acquisition; provided that an acquisition of a fee interest in real property “in connection with” a Permitted Acquisition shall include a fee interest in real property acquired subsequent to the closing date of such Permitted Acquisition so long as Company or its Subsidiary is obligated as of the closing date of such Permitted Acquisition to purchase the fee interest on a date certain within one year of the closing date of such Permitted Acquisition.
      “Permitted Liens” means each of the Liens permitted pursuant to Section 6.2.
      “Permitted Partially-Owned Subsidiary” means (a) those Domestic Subsidiaries of Company listed on Schedule 1.1 existing on the Closing Date, and (b) those Domestic Subsidiaries of Company acquired or created after the Closing Date, including laboratories and other associated veterinary businesses, and designated by Company as a Permitted Partially-Owned Subsidiary by written notice to the Administrative Agent, provided , that, with respect to Permitted Partially-Owned Subsidiaries acquired or created after the Closing Date, (i) Company owns more than 50% of the outstanding Capital Stock of such Subsidiary, (ii) Company shall use its commercially reasonable efforts to cause such Subsidiary to become a Guarantor hereunder and a Grantor under the Pledge and Security Agreement, and (iii) Company shall use its commercially reasonable efforts to cause the owner of the remaining Capital Stock of such Subsidiary to pledge his or her Capital Stock in such Permitted Partially-Owned Subsidiary in favor of the Collateral Agent for the benefit of the Secured Parties.
      “Permitted Seller Notes” means promissory notes containing subordination provisions in substantially the form of, or no less favorable to Lenders (in the reasonable judgment of Administrative Agent) than the subordination provisions contained in, Exhibit K annexed hereto, representing any Indebtedness of Holdings or Company incurred in connection with any Permitted Acquisition payable to the seller in connection therewith, as such note may be amended, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16; provided that, no Permitted Seller Note shall (i) be guarantied by any Subsidiary of Holdings or secured by any property of Holdings, Company or any of its Subsidiaries, (ii) bear cash interest at a rate greater than 8.5% per annum; or, (iii) except in accordance with Section 6.5, provide for any prepayment or repayment of all or any portion of the principal thereof prior to the date of the final scheduled installment of principal of the Loans; provided , further , that in no event shall the aggregate scheduled cash payments of principal and interest on all outstanding Permitted Seller Notes exceed $4,000,000 in any Fiscal Year.
      “Permitted Subsidiary Dropdown” means a transaction in which (a) a Domestic Subsidiary of Company (for purposes of this definition, the “existing Subsidiary”) creates a Domestic Subsidiary (for purposes of this definition, the “new Subsidiary”) and transfers some or all of the assets of the existing Subsidiary to the new Subsidiary, (b) the existing Subsidiary transfers some of the Capital

23


 

Stock in the new Subsidiary to a third Person, or the new Subsidiary issues Capital Stock in the new Subsidiary to a third Person, (i) as part of the transaction pursuant to which a Person was acquired and merged into the new Subsidiary or (ii) as part of an agreement to retain such Person as an employee of the business of Holdings and its Subsidiaries and (c) the new Subsidiary is designated as a Permitted Partially-Owned Subsidiary.
      “Permitted Transferee” has the meaning set forth in the definition of “Specified Acquisition” .
     “ Permitted Unsecured Indebtedness ” shall mean unsecured Indebtedness of Company or any of its Guarantor Subsidiaries; provided that (a) the terms of such debt (i) do not provide for any scheduled repayment, maturity date, mandatory redemption or sinking fund obligation prior to 90 days after the later of the Closing Date Term Loan Maturity and any then existing New Term Loan Maturity Date and (ii) do not materially restrict, limit or adversely affect the ability of any Credit Party to perform their obligations under any of the Credit Documents and (b) to the extent such Indebtedness is by its terms subordinated in right of payment to the Obligations, (i) such Indebtedness is subordinated to the Obligations on a basis reasonably satisfactory to Administrative Agent (it being understood and agreed that any such determination by Administrative Agent shall be binding on the Lenders and Lender Counterparties) and (ii) the terms of such subordinated indebtedness provide that no payments of any kind may be made under such subordinated indebtedness during any period while a Default or an Event of Default has occurred and is continuing or would arise as a result of such payment and (c) the covenants, events of default and credit support are (i) reasonably customary for similar offerings by issuers with credit ratings comparable to that of the issuer of such debt and (ii) no more restrictive than the covenants, events of default and credit support under this Agreement and (d) the terms of such debt are otherwise reasonably satisfactory to Administrative Agent (it being understood and agreed that any such determination by Administrative Agent shall be binding on the Lenders and Lender Counterparties); provided further that Permitted Seller Notes shall not be considered Permitted Unsecured Indebtedness.
      “Person” means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.
      “Platform” as defined in Section 5.12.
      “Pledge and Security Agreement” means the Pledge and Security Agreement executed by Company, each Guarantor and the Collateral Agent dated as of the date hereof, as it may be amended, supplemented or otherwise modified from time to time.
      “Prime Rate” means the rate of interest per annum that Wells Fargo announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Wells Fargo or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate.

24


 

      “Principal Office” means, for each of Administrative Agent, Swing Line Lender and Issuing Bank, such Person’s Principal Office as set forth on Appendix B, or such other office or office of a third party or sub-agent, as appropriate, as such Person may from time to time designate in writing to Company, Administrative Agent and each Lender.
      “Projections” as defined in Section 3.1(i).
      “Pro Rata Share” means (i) with respect to all payments, computations and other matters relating to the Closing Date Term Loan of any Lender, the percentage obtained by dividing (a) the Closing Date Term Loan Exposure of that Lender by (b) the aggregate Closing Date Term Loan Exposure of all Lenders; (ii) with respect to all payments, computations and other matters relating to the Revolving Commitment or Revolving Loans of any Lender or participations purchased therein by any Lender or any participations in any Swing Line Loans purchased by any Lender, the percentage obtained by dividing (a) the Revolving Exposure of that Lender by (b) the aggregate Revolving Exposure of all Lenders; and (iii) with respect to all payments, computations, and other matters relating to New Term Loan Commitments or New Term Loans of a particular Series, the percentage obtained by dividing (a) the New Term Loan Exposure of that Lender with respect to that Series by (b) the aggregate New Term Loan Exposure of all Lenders with respect to that Series. For all other purposes with respect to each Lender, Pro Rata Share means the percentage obtained by dividing (A) an amount equal to the sum of the Closing Date Term Loan Exposure, the Revolving Exposure and the New Term Loan Exposure of that Lender, by (B) an amount equal to the sum of the aggregate Closing Date Term Loan Exposure, the aggregate Revolving Exposure and the aggregate New Term Loan Exposure of all Lenders.
      “Public Disclosure” means Holdings’ most recent annual report, Form 10-K for the most recently completed fiscal year, each quarterly report on Form 10-Q or any current reports on Form 8-K (or similar reports filed on successor forms) filed since the initial filing date of such Form 10-K, in each case filed at least 5 Business Days prior to the Closing Date.
      “Public Lender” as defined in Section 5.12.
      “Real Estate Asset” means, at any time of determination, any interest (fee, leasehold or otherwise) then owned by any Credit Party in any real property.
      “Record Document” means, with respect to any Leasehold Property, (i) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (ii) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Collateral Agent.
      “Recorded Leasehold Interest” means a Leasehold Property with respect to which a Record Document has been recorded in all places necessary or desirable, in Collateral Agent’s reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrancers of the affected real property.
      “Refunded Swing Line Loans” as defined in Section 2.3(b)(iv).

25


 

      “Register” as defined in Section 2.6(b).
      “Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
      “Reimbursement Date” as defined in Section 2.23(d).
      “Related Fund” means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
      “Release” means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material), including the movement of any Hazardous Material through the air, soil, surface water or groundwater.
      “Replacement Lender” as defined in Section 2.22.
      “Replacement Term Loans” as defined in Section 10.5(e).
      “Requisite Class Lenders” means, as at any date of determination, (i) for the Class of Lenders having Closing Date Term Loan Exposure, Lenders holding more than 50% of the aggregate Closing Date Term Loan Exposure of all Lenders; (ii) for the Class of Lenders having Revolving Exposure, Lenders having or holding more than 50% of the aggregate Revolving Exposure of all Lenders; and (iii) for each Class of Lenders having New Term Loan Exposure, Lenders holding more than 50% of the aggregate New Term Loan Exposure of that Class.
      “Requisite Lenders” means Lenders having or holding Closing Date Term Loan Exposure, New Term Loan Exposure and/or Revolving Exposure and representing more than 50% of the sum of (i) the aggregate Closing Date Term Loan Exposure of all Lenders; (ii) the aggregate Revolving Exposure of all Lenders; and (iii) the aggregate New Term Loan Exposure of all Lenders.
      “Restricted Junior Payment” means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Holdings or Company or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Holdings or Company or any of its Subsidiaries now or hereafter outstanding; (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Holdings or Company or any of its Subsidiaries now or hereafter outstanding and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness or any Permitted Unsecured Indebtedness.
      “Revolving Commitment” means the commitment of a Lender to make or otherwise fund any Revolving Loan and to acquire participations in Letters of Credit and Swing Line Loans hereunder and “Revolving Commitments” means such commitments of all Lenders in the aggregate. The amount

26


 

of each Lender’s Revolving Commitment, if any, is set forth on Appendix A-2 or in the applicable Assignment Agreement or Joinder Agreement, as the case may be, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Commitments as of the Closing Date is $100,000,000.
      “Revolving Commitment Period” means the period from the Closing Date to but excluding the Revolving Commitment Termination Date.
      “Revolving Commitment Termination Date” means the earliest to occur of (i) August 19, 2015, (ii) the date the Revolving Commitments are permanently reduced to zero pursuant to Section 2.12(b) or 2.13, and (iii) the date of the termination of the Revolving Commitments pursuant to Section 8.1.
      “Revolving Exposure” means, with respect to any Lender as of any date of determination, (i) prior to the termination of the Revolving Commitments, that Lender’s Revolving Commitment; and (ii) after the termination of the Revolving Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender, (b) in the case of Issuing Bank, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (net of any participations by Lenders in such Letters of Credit), (c) in the case of Lenders (other than an Issuing Bank with respect to Letters of Credit issued by it), the aggregate amount of all participations by that Lender in any outstanding Letters of Credit or any unreimbursed drawing under any Letter of Credit, (d) in the case of Swing Line Lender, the aggregate outstanding principal amount of all Swing Line Loans (net of any participations therein by other Lenders), and (e) in the case of Lenders other than the Swing Line Lender, the aggregate amount of all participations therein by that Lender in any outstanding Swing Line Loans.
      “Revolving Lender” shall mean a Lender with a Revolving Commitment.
      “Revolving Loan” means a Loan made by a Lender to Company pursuant to Section 2.2(a).
      “Revolving Loan Note” means a promissory note in the form of Exhibit B-3, as it may be amended, supplemented or otherwise modified from time to time.
      “S&P” means Standard & Poor’s Ratings Group, a division of The McGraw Hill Corporation.
      “Sanctioned Entity” means (a) an agency of the government of, (b) an organization directly or indirectly controlled by, or (c) a person resident in, a country that is subject to a sanctions program identified on the list maintained by OFAC and available at http://www.treas.gov/offices/enforcement/ofac/programs, or as otherwise published from time to time as such program may be applicable to such agency, organization or person.
      “Sanctioned Person” means a person named on the list of Specially Designated Nationals or Blocked Persons maintained by OFAC available at http://www.treas.gov/offices/enforcement/ofac/sdn/index.shtml, or as otherwise published from time to time.
      “Secured Parties” has the meaning assigned to that term in the Pledge and Security Agreement.

27


 

      “Securities” means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as securities or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
      “Securities Act” means the Securities Act of 1933, as amended from time to time, and any successor statute.
      “Series” as defined in Section 2.24.
      “Settlement Confirmation” as defined in Section 10.6(b).
      “Settlement Service” as defined in Section 10.6(d).
      “Solvency Certificate” means a Solvency Certificate of the chief financial officer of Holdings substantially in the form of Exhibit G-2.
      “Solvent” means, with respect to any Person, that as of the date of determination both (i)(a) the sum of such Person’s debt (including contingent liabilities) does not exceed all of its property, at a fair valuation; (b) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liabilities on such Person’s then existing debts as they become absolute and matured; (c) such Person’s capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (d) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (ii) such Person is solvent within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).
      “Specified Acquisition” means a Permitted Acquisition in which, as part of such acquisition, Company or the Company Subsidiary that makes such acquisition sells, assigns or otherwise transfers Capital Stock of the target company (or, subject to such sale, assignment or transfer not being a Change of Control or a Default hereunder, any entity into which the target company is merged or into which substantially all of the assets of the target company are acquired) to any member of the management of, employee of, or any owner of the Capital Stock of the company that was the subject of such Permitted Acquisition (such member or owner, a “Permitted Transferee” ).
     “ Specified Cash Management Arrangement ” means any cash management arrangement (a) entered into by (i) Company or any of its Subsidiaries and (ii) any Lender Counterparty, as counterparty and (b) which has been designated by such Lender Counterparty and Company, by notice to the Administrative Agent not later than thirty (30) days after the execution and delivery by Company or such Subsidiary thereof, as a Specified Cash Management Arrangement. No Lender Counterparty that is a party to a Specified Cash Management Arrangement shall have any rights in

28


 

connection with the management or release of any Collateral or of the Obligations of any Credit Party under any Credit Document. For the avoidance of doubt, (i) all cash management arrangements provided by the Administrative Agent or any of its Affiliates and (ii) all cash management arrangements in existence on the Closing Date between Company or any of its Subsidiaries and any Lender or an Affiliate thereof, shall constitute Specified Cash Management Arrangements.
      “Subject Transaction” as defined in Section 6.8(f).
      “Subordinated Indebtedness” means (i) Indebtedness outstanding under Permitted Seller Notes, (ii) any Permitted Unsecured Indebtedness noted in clause (b) of the definition of Permitted Unsecured Indebtedness and (iii) any Take Out Securities that constitute Indebtedness.
      “Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided , in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a qualifying share of the former Person shall be deemed to be outstanding.
      “Swing Line Lender” means Wells Fargo in its capacity as Swing Line Lender hereunder, together with its permitted successors and assigns in such capacity.
      “Swing Line Loan” means a Loan made by Swing Line Lender to Company pursuant to Section 2.3.
      “Swing Line Note” means a promissory note in the form of Exhibit B-3, as it may be amended, supplemented or otherwise modified from time to time.
      “Swing Line Sublimit” means the lesser of (i) $10,000,000, and (ii) the aggregate unused amount of Revolving Commitments then in effect.
      “Syndication Agent” as defined in the preamble hereto.
      “Take Out Securities” means Capital Stock or other securities convertible into or otherwise linked to Capital Stock, the net proceeds of which are used to repay the Loans and/or the Revolving Commitments; provided , however, that to the extent the issuance of such Capital Stock or other securities constitute Indebtedness, such Indebtedness shall be unsecured and subordinated in a manner satisfactory to the Agents.
      “Tax” means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority; provided , Tax on the overall net income of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person’s applicable principal office (and/or, in the case of a Lender, its lending office) is located or in

29


 

which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on or measured by all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office).
      “Term Loan” means a Closing Date Term Loan or a New Term Loan.
      “Term Loan Commitment” means a Closing Date Term Loan Commitment or a New Term Loan Commitment, and “Term Loan Commitments” means such commitments of all Lenders.
      “Term Loan Maturity Date” means the Closing Date Term Loan Maturity Date or the New Term Loan Maturity Date, as applicable, of any Series of New Term Loans.
      “Term Loan Note” means a promissory note substantially in the form of Exhibit B-1, as it may be amended, supplemented or otherwise modified from time to time.
      “Terminated Lender” as defined in Section 2.22.
      “Title Policy” as defined in Section 5.11.
      “Total Utilization of Revolving Commitments” means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans (other than Revolving Loans made for the purpose of repaying any Refunded Swing Line Loans or reimbursing Issuing Bank for any amount drawn under any Letter of Credit, but not yet so applied), (ii) the aggregate principal amount of all outstanding Swing Line Loans, and (iii) the Letter of Credit Usage.
      “Transaction Costs” means the fees, costs and expenses payable by Holdings, Company or any of Company’s Subsidiaries in connection with the closing of the transactions contemplated by the Credit Documents, on the Closing Date.
      “Type of Loan” means (i) with respect to either Term Loans or Revolving Loans, a Base Rate Loan or a Eurodollar Rate Loan, and (ii) with respect to Swing Line Loans, a Base Rate Loan.
      “UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
      “UCC Questionnaire” means a certificate in form satisfactory to the Collateral Agent that provides information with respect to the personal or mixed property of each Credit Party.
      1.2 Accounting Terms .
          (a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with GAAP, applied on a consistent basis, as in effect from time to time and in a manner consistent with that used in preparing the Historical Financial Statements, except as otherwise specifically prescribed herein.

30


 

          (b) If at any time any change in GAAP or in the application of GAAP would affect the computation of any financial ratio or other financial covenant set forth in any Credit Document, and either Company or the Requisite Lenders shall so request, Administrative Agent, Lenders and Company shall negotiate in good faith to amend (subject to Section 10.5) such ratio or covenant to preserve the original intent thereof in light of such change in (or in the application of) GAAP; provided that, until so amended, (i) such ratio or financial covenant shall continue to be computed in accordance with GAAP prior to such change in (or in application of) GAAP and (ii) Company shall provide to the Administrative Agent financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or financial covenant made before and after giving effect to such change in (or in the application of) GAAP as is reasonably necessary to demonstrate compliance (or non-compliance) with such ratio or financial covenants.
          (c) Notwithstanding any other provision contained herein, calculations in connection with the definitions, covenants and other provisions hereof shall be made without giving effect to any election under Accounting Standards Codification 825-10 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Credit Party or any Subsidiary of any Credit Party at “fair value”).
      1.3 Interpretation, etc. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word “include” or “including”, when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as without limitation or but not limited to or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.
SECTION 2. LOANS
      2.1 Closing Date Term Loans .
          (a) Closing Date Term Loan Commitments . Subject to the terms and conditions hereof, each Lender severally agrees to make, on the Closing Date, a Closing Date Term Loan to Company in an amount equal to such Lender’s Closing Date Term Loan Commitment. Company may make only one borrowing under the Closing Date Term Loan Commitments which shall be on the Closing Date. Any amount borrowed under this Section 2.1(a) and subsequently repaid or prepaid may not be reborrowed. Subject to Sections 2.12(a) and 2.13, all amounts owed hereunder with respect to the Closing Date Term Loans shall be paid in full no later than the Closing Date Term Loan Maturity Date. Each Lender’s Closing Date Term Loan Commitment shall terminate immediately and without further action on the Closing Date after giving effect to the funding of such Lender’s Closing Date Term Loan Commitment on such date.

31


 

          (b) Borrowing Mechanics for Closing Date Term Loans .
               (i) Company shall deliver to Administrative Agent a fully executed and delivered Closing Date Certificate (which shall be deemed to be a Funding Notice with respect to the Closing Date Term Loans for all purposes hereof) no later than 1:00 p.m. (New York City time) one Business Day prior to the Closing Date. Promptly upon receipt by Administrative Agent of such certificate, Administrative Agent shall notify each Lender of the proposed borrowing.
               (ii) Each Lender shall make its Closing Date Term Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the Closing Date, by wire transfer of same day funds in Dollars, at the Principal Office designated by Administrative Agent. Upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of the Closing Date Term Loans available to Company on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders to be credited to the account of Company at the Principal Office designated by Administrative Agent or to such other account as may be designated in writing to Administrative Agent by Company.
               (iii) All Closing Date Term Loans must be, as of the Closing Date, Base Rate Loans.
      2.2 Revolving Loans .
          (a) Revolving Commitments . During the Revolving Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make Revolving Loans to Company in the aggregate amount up to but not exceeding such Lender’s Revolving Commitment; provided , after giving effect to the making of any Revolving Loans in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect. Amounts borrowed pursuant to this Section 2.2(a) may be repaid and reborrowed during the Revolving Commitment Period. Each Lender’s Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Commitments shall be paid in full no later than such date.
          (b) Borrowing Mechanics for Revolving Loans .
               (i) Revolving Loans that are Base Rate Loans shall be made in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount, and Revolving Loans that are Eurodollar Rate Loans shall be in an aggregate minimum amount of $2,000,000 and integral multiples of $1,000,000 in excess of that amount.
               (ii) Whenever Company desires that Lenders make Revolving Loans, Company shall deliver to Administrative Agent a fully executed and delivered Funding Notice no later than 1:00 p.m. (New York City time) at least three Business Days in advance of the proposed Credit Date in the case of a Eurodollar Rate Loan, and at least one Business Day in advance of the proposed Credit Date in the case of a Revolving Loan that is a Base Rate Loan. Except as otherwise provided herein, a Funding Notice for a Revolving Loan that is a Eurodollar Rate Loan shall be irrevocable on

32


 

and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith.
               (iii) Notice of receipt of each Funding Notice in respect of Revolving Loans, together with the amount of each Lender’s Pro Rata Share thereof, if any, together with the applicable interest rate, shall be provided by Administrative Agent to each applicable Lender by telefacsimile with reasonable promptness, but (provided Administrative Agent shall have received such notice by 1:00 p.m. (New York City time)) not later than 3:00 p.m. (New York City time) on the same day as Administrative Agent’s receipt of such Notice from Company.
               (iv) Each Lender shall make the amount of its Revolving Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at the Principal Office designated by the Administrative Agent. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Revolving Loans available to Company on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Revolving Loans received by Administrative Agent from Lenders to be credited to the account of Company at the Principal Office designated by the Administrative Agent or such other account as may be designated in writing to Administrative Agent by Company.
               (v) Any Revolving Loans made on the Closing Date must be, as of the Closing Date, Base Rate Loans.
      2.3 Swing Line Loans .
          (a) Swing Line Loans Commitments . During the Revolving Commitment Period, subject to the terms and conditions hereof, Swing Line Lender hereby agrees to make Swing Line Loans to Company in the aggregate amount up to but not exceeding the Swing Line Sublimit; provided , after giving effect to the making of any Swing Line Loan, in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect. Amounts borrowed pursuant to this Section 2.3 may be repaid and reborrowed during the Revolving Commitment Period. Swing Line Lender’s Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans and the Revolving Commitments shall be paid in full no later than such date.
          (b) Borrowing Mechanics for Swing Line Loans .
               (i) Swing Line Loans shall be made in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount.
               (ii) Whenever Company desires that Swing Line Lender make a Swing Line Loan, Company shall deliver to Administrative Agent a Funding Notice no later than 1:00 p.m. (New York City time) on the proposed Credit Date.
               (iii) Swing Line Lender shall make the amount of its Swing Line Loan available to Administrative Agent not later than 3:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at the Administrative Agent’s Principal

33


 

Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Swing Line Loans available to Company on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Swing Line Loans received by Administrative Agent from Swing Line Lender to be credited to the account of Company at the Administrative Agent’s Principal Office, or to such other account as may be designated in writing to Administrative Agent by Company.
               (iv) With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to Section 2.12, Swing Line Lender may at any time in its sole and absolute discretion, deliver to Administrative Agent (with a copy to Company), no later than 11:00 a.m. (New York City time) at least one (1) Business Day in advance of the proposed Credit Date, a notice (which shall be deemed to be a Funding Notice given by Company) requesting that each Lender holding a Revolving Commitment make Revolving Loans that are Base Rate Loans to Company on such Credit Date in an amount equal to the amount of such Swing Line Loans (the “Refunded Swing Line Loans” ) outstanding on the date such notice is given which the Swing Line Lender requests Lenders to prepay. Notwithstanding anything contained in this Agreement to the contrary, (1) the proceeds of such Revolving Loans made by the Lenders other than Swing Line Lender shall be immediately delivered by the Administrative Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (2) on the day such Revolving Loans are made, Swing Line Lender’s Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by Swing Line Lender to Company, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note of Swing Line Lender but shall instead constitute part of Swing Line Lender’s outstanding Revolving Loans to Company and shall be due under the Revolving Loan Note issued by Company to Swing Line Lender. Company hereby authorizes Administrative Agent and Swing Line Lender to charge Company’s accounts with Administrative Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by Lenders, including the Revolving Loan deemed to be made by the Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on behalf of Company from Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by Section 2.16.
               (v) If for any reason Revolving Loans are not made pursuant to Section 2.3(b)(iv) in an amount sufficient to repay any amounts owed to Swing Line Lender in respect of any outstanding Swing Line Loans on or before the third Business Day after demand for payment thereof by Swing Line Lender, each Lender holding a Revolving Commitment shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans, and in an amount equal to its Pro Rata Share of the applicable unpaid amount together with accrued interest thereon. Upon one (1) Business Day’s notice from Swing Line Lender, each Lender holding a Revolving Commitment shall deliver to Swing Line Lender an amount equal to its respective participation in the applicable unpaid amount in same day funds at the Principal Office of Swing Line Lender. In order to evidence such participation each Lender holding a Revolving Commitment agrees to enter into a participation agreement at the request of Swing Line Lender in form and substance reasonably satisfactory to Swing Line Lender. In the event any Lender holding a Revolving Commitment fails to

34


 

make available to Swing Line Lender the amount of such Lender’s participation as provided in this paragraph, Swing Line Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon for three Business Days at the rate customarily used by Swing Line Lender for the correction of errors among banks and thereafter at the Base Rate, as applicable.
               (vi) Notwithstanding anything contained herein to the contrary, (1) each Lender’s obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Lender’s obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Swing Line Lender, any Credit Party or any other Person for any reason whatsoever; (B) the occurrence or continuation of a Default or Event of Default; (C) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Credit Party; (D) any breach of this Agreement or any other Credit Document by any party thereto; or (E) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that such obligations of each Lender are subject to the condition that Swing Line Lender believed in good faith that all conditions under Section 3.2 to the making of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made, or the satisfaction of any such condition not satisfied had been waived by Requisite Lenders prior to or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were made; and (2) Swing Line Lender shall not be obligated to make any Swing Line Loans (A) if it has elected not to do so after the occurrence and during the continuation of a Default or Event of Default or (B) at a time when a Funding Default or Lender Insolvency Default exists unless Swing Line Lender has entered into arrangements satisfactory to it and Company to eliminate Swing Line Lender’s risk with respect to the Defaulting Lender’s participation in such Swing Line Loan, including by cash collateralizing such Defaulting Lender’s Pro Rata Share of the outstanding Swing Line Loans.
               (vii) All Swing Line Loans must be, at all times, Base Rate Loans.
      2.4 Pro Rata Shares; Availability of Funds .
          (a) Pro Rata Shares . All Loans shall be made, and all participations purchased, by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender’s obligation to make a Loan requested hereunder or purchase a participation required hereby nor shall any Term Loan Commitment or any Revolving Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender’s obligation to make a Loan requested hereunder or purchase a participation required hereby.
          (b) Availability of Funds . Unless Administrative Agent shall have been notified by any Lender prior to the applicable Credit Date that such Lender does not intend to make available to Administrative Agent the amount of such Lender’s Loan requested on such Credit Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Credit Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Credit Date. If

35


 

such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent’s demand therefor, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the rate payable hereunder for Base Rate Loans for such Class of Loans. Nothing in this Section 2.4(b) shall be deemed to relieve any Lender from its obligation to fulfill its Term Loan Commitments and Revolving Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder.
      2.5 Use of Proceeds . All proceeds of the Closing Date Term Loans shall be applied by Company to repay and refinance all amounts outstanding under the Existing Credit Agreement and to pay fees, costs and expenses in connection therewith and, to the extent of any funds remaining thereafter, for general corporate purposes. The proceeds of the Revolving Loans, Letters of Credit, Swing Line Loans and any New Term Loans shall be applied by Company for working capital and general corporate purposes of Company and its Subsidiaries, including Permitted Acquisitions. No portion of the proceeds of any Credit Extension shall be used in any manner that causes or might cause such Credit Extension or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Exchange Act.
      2.6 Evidence of Debt; Register; Lenders’ Books and Records; Notes .
          (a) Lenders’ Evidence of Debt . Each Lender shall maintain on its internal records an account or accounts evidencing the Indebtedness of Company to such Lender, including the amounts of the Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be prima facie evidence thereof; provided , failure to make any such recordation, or any error in such recordation, shall not affect any Lender’s Revolving Commitments or Company’s Obligations in respect of any applicable Loans; and provided further , in the event of any inconsistency between the Register and any Lender’s records, the recordations in the Register shall govern.
          (b) Register . Administrative Agent (or its agent or sub-agent appointed by it) shall maintain at the Principal Office a register for the recordation of the names and addresses of Lenders and the Revolving Commitments and Loans of each Lender from time to time (the “Register” ). The Register, as in effect at the close of business on the preceding Business Day, shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. Administrative Agent shall record, or shall cause to be recorded, in the Register the Revolving Commitments and the Loans, and each repayment or prepayment in respect of the principal amount of the Loans, and any such recordation shall be conclusive and binding on Company and each Lender, absent manifest error; provided , failure to make any such recordation, or any error in such recordation, shall not affect any Lender’s Revolving Commitments or Company’s Obligations in respect of any Loan. Company hereby designates Wells Fargo to serve as Company’s agent solely for purposes of maintaining the Register as provided in this Section 2.6, and Company hereby agrees that,

36


 

to the extent Wells Fargo serves in such capacity, Wells Fargo and its officers, directors, employees, agents, sub-agents and affiliates shall constitute Indemnitees.
          (c) Notes . If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two Business Days prior to the Closing Date, or at any time thereafter, Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 10.6) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after Company’s receipt of such notice) a Note or Notes to evidence such Lender’s Term Loan, Revolving Loan or Swing Line Loan, as the case may be.
      2.7 Interest on Loans .
          (a) Except as otherwise set forth herein, each Class of Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:
               (i) in the case of Term Loans and Revolving Loans:
  (1)   if a Base Rate Loan, at the Base Rate plus the Applicable Margin; or
 
  (2)   if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus the Applicable Margin; and
               (ii) in the case of Swing Line Loans, at the Base Rate plus the Applicable Margin.
          (b) The basis for determining the rate of interest with respect to any Loan (except a Swing Line Loan which can be made and maintained as Base Rate Loans only), and the Interest Period with respect to any Eurodollar Rate Loan, shall be selected by Company and notified to Administrative Agent and Lenders pursuant to the applicable Funding Notice or Conversion/Continuation Notice, as the case may be. If on any day a Loan is outstanding with respect to which a Funding Notice or Conversion/Continuation Notice has not been delivered to Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Loan shall be a Base Rate Loan.
          (c) In connection with Eurodollar Rate Loans there shall be no more than twelve (12) Interest Periods outstanding at any time. In the event Company fails to specify between a Base Rate Loan or a Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, such Loan (if outstanding as a Eurodollar Rate Loan) shall be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Loan (or if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) shall be made as, a Base Rate Loan). In the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, Company shall be deemed to have selected an Interest Period of one month. As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall be prima facie evidence thereof) the interest rate that shall apply to the Eurodollar Rate Loans for which

37


 

an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender.
          (d) Interest payable pursuant to Section 2.7(a) shall be computed (i) in the case of Base Rate Loans on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Term Loan, the preceding Interest Payment Date with respect to such Term Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided , if a Loan is repaid on the same day on which it is made, one day’s interest shall be paid on that Loan.
          (e) Interest on each Loan shall accrue and shall be payable in arrears on each Interest Payment Date and at maturity, including final maturity; provided , that interest accruing in accordance with Section 2.7(f)(ii) or Section 2.9 shall be payable on demand.
          (f) Company agrees to pay to Issuing Bank, with respect to drawings honored under any Letter of Credit, interest on the amount paid by Issuing Bank in respect of each such honored drawing from the date such drawing is honored to but excluding the date such amount is reimbursed by or on behalf of Company at a rate equal to (i) for the period from the date such drawing is honored to but excluding the applicable Reimbursement Date, the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Base Rate Loans, and (ii) from and after the applicable Reimbursement Date (if not paid by the applicable Reimbursement Date), a rate which is 2% per annum in excess of the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Base Rate Loans.
          (g) Interest payable pursuant to Section 2.7(f) shall be computed on the basis of a 365/366-day year for the actual number of days elapsed in the period during which it accrues, and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. Promptly upon receipt by Issuing Bank of any payment of interest pursuant to Section 2.7(f), Issuing Bank shall distribute to each Lender, out of the interest received by Issuing Bank in respect of the period from the date such drawing is honored to but excluding the date on which Issuing Bank is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of any Revolving Loans), the amount that such Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period if no drawing had been honored under such Letter of Credit. In the event Issuing Bank shall have been reimbursed by Lenders for all or any portion of such honored drawing, Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under Section 2.23(e) with respect to such honored drawing such Lender’s Pro Rata Share of any interest received by Issuing Bank in respect of that portion of such honored drawing so reimbursed by Lenders for the period from the date on which Issuing Bank was so reimbursed by Lenders to but excluding the date on which such portion of such honored drawing is reimbursed by Company.

38


 

      2.8 Conversion/Continuation .
          (a) Subject to Section 2.17 and so long as no Default or Event of Default shall have occurred and then be continuing, Company shall have the option:
               (i) to convert at any time all or any part of any Term Loan or Revolving Loan equal to $1,000,000 and integral multiples of $500,000 in excess of that amount from one Type of Loan to another Type of Loan; provided , a Eurodollar Rate Loan may only be converted on the expiration of the Interest Period applicable to such Eurodollar Rate Loan unless Company shall pay all amounts due under Section 2.17 in connection with any such conversion; or
               (ii) upon the expiration of any Interest Period applicable to any Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $2,000,000 and integral multiples of $1,000,000 in excess of that amount as a Eurodollar Rate Loan.
          (b) Company shall deliver a Conversion/Continuation Notice to Administrative Agent no later than 1:00 p.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any Eurodollar Rate Loans (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith.
      2.9 Default Interest . Upon the occurrence and during the continuance of an Event of Default described in Section 8.1(a), the principal amount of all Loans and any interest payments on the Loans or any fees or other amounts owed hereunder not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall, to the extent permitted by applicable law, thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate that is 2% per annum in excess of the interest rate otherwise payable hereunder with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans); provided , in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.9 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender.
      2.10 Fees .
          (a) Company agrees to pay to Lenders having Revolving Exposure:
               (i) commitment fees equal to (1) the average of the daily difference between (a) the Revolving Commitments, and (b) the sum of (x) the aggregate principal amount of

39


 

outstanding Revolving Loans (but not any outstanding Swing Line Loans) plus (y) the Letter of Credit Usage, times (2) the Applicable Revolving Commitment Fee Percentage; and
               (ii) letter of credit fees equal to (1) the Applicable Margin for Revolving Loans that are Eurodollar Rate Loans, times (2) the average aggregate daily maximum amount available to be drawn under all such Letters of Credit (regardless of whether any conditions for drawing could then be met and determined as of the close of business on any date of determination).
          (b) [Reserved].
          (c) Company agrees to pay directly to Issuing Bank, for its own account, the following fees:
               (i) a per annum fronting fee separately agreed between the Issuing Bank and Company, times the average aggregate daily maximum amount available to be drawn under all Letters of Credit (determined as of the close of business on any date of determination); and
               (ii) such documentary and processing charges for any issuance, amendment, transfer or payment of a Letter of Credit as are in accordance with Issuing Bank’s standard schedule for such charges and as in effect at the time of such issuance, amendment, transfer or payment, as the case may be.
          (d) All fees referred to in Section 2.10(a) shall be calculated on the basis of a 360-day year, and the actual number of days elapsed and shall be payable quarterly in arrears on April 1, July 1, October 1 and January 1 of each year during the Revolving Commitment Period, commencing on the first such date to occur after the Closing Date, and on the Revolving Commitment Termination Date.
          (e) In addition to any of the foregoing fees, Company agrees to pay to Agents such other fees in the amounts and at the times separately agreed upon, including but not limited to any closing fees for the benefit of the Lenders set forth in that certain fee letter dated as of July 16, 2010 among Company, the Lead Arrangers, the Administrative Agent and the Syndication Agent (as it may be amended, supplemented or otherwise modified from time to time).
      2.11 Scheduled Payments . The principal amount of the Closing Date Term Loans shall be repaid in consecutive quarterly installments (each, an “Installment” ) in the aggregate amounts set forth below on the last day of each Fiscal Quarter (each, an “Installment Date” ) commencing December 31, 2010:
         
    Closing Date Term
Installment Date   Loan Installments
December 31, 2010
  $ 6,250,000  
March 31, 2011
  $ 6,250,000  
June 30, 2011
  $ 6,250,000  
September 30, 2011
  $ 6,250,000  
December 31, 2011
  $ 6,250,000  

40


 

         
    Closing Date Term
Installment Date   Loan Installments
March 31, 2012
  $ 6,250,000  
June 30, 2012
  $ 6,250,000  
September 30, 2012
  $ 6,250,000  
December 31, 2012
  $ 9,375,000  
March 31, 2013
  $ 9,375,000  
June 30, 2013
  $ 9,375,000  
September 30, 2013
  $ 9,375,000  
December 31, 2013
  $ 9,375,000  
March 31, 2014
  $ 9,375,000  
June 30, 2014
  $ 9,375,000  
September 30, 2014
  $ 9,375,000  
December 31, 2014
  $ 12,500,000  
March 31, 2015
  $ 12,500,000  
June 30, 2015
  $ 12,500,000  
Closing Date Term Loan Maturity Date
  $ 337,500,000  
     ; provided , in the event any New Term Loans are made, such New Term Loans shall be repaid on each Installment Date occurring on or after the applicable Increased Amount Date in an amount not in excess of the product of (i) the aggregate principal amount of New Term Loans of the applicable Series of New Term Loans, times (ii) the ratio (expressed as a percentage) of (y) the amount of all other Term Loans being repaid on such Installment Date and (z) the total aggregate principal amount of all other Term Loans outstanding on such Increased Amount Date.
     Notwithstanding the foregoing, (y) such Installments shall be reduced in connection with any voluntary or mandatory prepayments of the Term Loans in accordance with Sections 2.12, 2.13 and 2.14 as applicable; and (z) the Closing Date Term Loans and the New Term Loans, together with all other amounts owed hereunder with respect thereto, shall, in any event, be paid in full no later than the Closing Date Term Loan Maturity Date and the New Term Loan Maturity Date, respectively.
      2.12 Voluntary Prepayments/Commitment Reductions .
          (a) Voluntary Prepayments .
               (i) Any time and from time to time:
     (1) with respect to Base Rate Loans, Company may prepay, any such Loans on any Business Day in whole or in part, in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount;

41


 

     (2) with respect to Eurodollar Rate Loans, Company may prepay, any such Loans on any Business Day in whole or in part in an aggregate minimum amount of $2,000,000 and integral multiples of $1,000,000 in excess of that amount; and
     (3) with respect to Swing Line Loans, Company may prepay, any such Loans on any Business Day in whole or in part in an aggregate minimum amount of $100,000, and in integral multiples of $100,000 in excess of that amount.
               (ii) All such prepayments shall be made:
     (1) upon not less than one Business Day’s prior written or telephonic notice in the case of Base Rate Loans;
     (2) upon not less than three Business Day’s prior written or telephonic notice in the case of Eurodollar Rate Loans; and
     (3) upon written or telephonic notice on the date of prepayment, in the case of Swing Line Loans;
in each case given to Administrative Agent or Swing Line Lender, as the case may be, by 1:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (and Administrative Agent will promptly transmit such telephonic or original notice for Term Loans or Revolving Loans, as the case may be, by telefacsimile or telephone to each Lender) or Swing Line Lender, as the case may be. Upon the giving of any such notice, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein.
          (b) Voluntary Commitment Reductions .
               (i) Company may, upon not less than three Business Days’ prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each applicable Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Commitments in an amount up to the amount by which the Revolving Commitments exceed the Total Utilization of Revolving Commitments at the time of such proposed termination or reduction; provided , any such partial reduction of the Revolving Commitments shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount.
               (ii) Company’s notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Commitments shall be effective on the date specified in Company’s notice and shall reduce the Revolving Commitment of each Lender proportionately to its Pro Rata Share thereof.
      2.13 Mandatory Prepayments/Commitment Reductions .

42


 

          (a) Asset Sales . No later than the first Business Day following the date of receipt by Holdings or any of its Subsidiaries of any Net Asset Sale Proceeds, Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to such Net Asset Sale Proceeds; provided , (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) so long as the reinvestment of any such Net Asset Sale Proceeds are considered Consolidated Capital Expenditures in the determination of the Fixed Charge Coverage Ratio, Company shall have the option, directly or through one or more of its Subsidiaries, to invest Net Asset Sale Proceeds within two hundred seventy (270) days of receipt thereof in long term productive assets of the general type used in the business of Company and its Subsidiaries, including the purchase of one or more businesses and any real estate related to such businesses; provided further , pending any such investment all such Net Asset Sale Proceeds shall be applied to prepay Revolving Loans to the extent outstanding (without a reduction in Revolving Commitments). Notwithstanding the foregoing, proceeds received by Holdings or any of its Subsidiaries from sale lease back transactions permitted under Section 6.11 shall be subject to the prepayment requirements set forth in Section 6.11 and not the prepayment requirements set forth in this Section 2.13(a).
          (b) Insurance/Condemnation Proceeds . No later than the first Business Day following the date of receipt by Holdings or any of its Subsidiaries, or Administrative Agent as loss payee, of any Net Insurance/Condemnation Proceeds, Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to such Net Insurance/Condemnation Proceeds; provided , (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) so long as the reinvestment of any such Net Insurance/Condemnation Proceeds are considered Consolidated Capital Expenditures in determination of the Fixed Charge Coverage Ratio, Company shall have the option, directly or through one or more of its Subsidiaries to invest such Net Insurance/Condemnation Proceeds within two hundred seventy (270) days of receipt thereof in long term productive assets of the general type used in the business of Holdings and its Subsidiaries, which investment may include the repair, restoration or replacement of the applicable assets thereof; provided further , pending any such investment all such Net Insurance/Condemnation Proceeds, as the case may be, shall be applied to prepay Revolving Loans to the extent outstanding (without a reduction in Revolving Commitments).
          (c) [Reserved].
          (d) Issuance of Debt . On the date of receipt by Holdings or any of its Subsidiaries of any Cash proceeds from incurrence of any Indebtedness of Holdings or any of its Subsidiaries (other than with respect to any Indebtedness permitted to be incurred pursuant to Section 6.1), Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to 100% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses.
          (e) [Reserved].
          (f) Revolving Loans and Swing Loans . Company shall from time to time prepay first , the Swing Line Loans, and second , the Revolving Loans to the extent necessary so that the Total

43


 

Utilization of Revolving Commitments shall not at any time exceed the Revolving Commitments then in effect.
          (g) Prepayment Certificate . Concurrently with any prepayment of the Loans and/or reduction of the Revolving Commitments pursuant to Sections 2.13(a) through 2.13(e) or Section 6.11, Company shall deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the calculation of the amount of the applicable net proceeds. In the event that Company shall subsequently determine that the actual amount received exceeded the amount set forth in such certificate, Company shall promptly make an additional prepayment of the Loans and/or the Revolving Commitments shall be permanently reduced in an amount equal to such excess, and Company shall concurrently therewith deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the derivation of such excess.
      2.14 Application of Prepayments/Reductions.
          (a) Application of Voluntary Prepayments by Class of Loans . Any prepayment of any Loan pursuant to Section 2.12(a) shall be applied as specified by Company in the applicable notice of prepayment (for the sake of clarity, including the order of application to scheduled Installments of principal of the Term Loans to the extent any such prepayment is applied to the Term Loans); provided , in the event Company fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied as follows:
      first , to repay outstanding Swing Line Loans to the full extent thereof;
      second , to repay outstanding Revolving Loans to the full extent thereof; and
      third , to repay the Term Loans on a pro rata basis (in accordance with the respective outstanding principal amounts of each Class thereof) and shall be further applied on a pro rata basis to each scheduled Installment of principal of the Term Loans (including, for the avoidance of doubt, the Installment due on the Term Loan Maturity Date for the applicable Class).
          (b) Application of Mandatory Prepayments by Class of Loans . Any amount required to be paid pursuant to Sections 2.13(a) through 2.13(e) or Section 6.11 shall be applied as follows:
      first , to prepay Term Loans on a pro rata basis (in accordance with the respective outstanding principal amounts of each Class thereof) and shall be further applied in direct order of maturity to each scheduled Installment of principal of the Term Loans (including, for the avoidance of doubt, the Installment due on the Term Loan Maturity Date for the applicable Class);
      second , to prepay the Swing Line Loans to the full extent thereof and to permanently reduce the Revolving Commitments by the amount of such prepayment;
      third , to prepay the Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Commitments by the amount of such prepayment;

44


 

      fourth , to prepay outstanding reimbursement obligations with respect to Letters of Credit and to further permanently reduce the Revolving Commitments by the amount of such prepayment;
      fifth , to cash collateralize Letters of Credit and to further permanently reduce the Revolving Commitments by the amount of such cash collateralization; and
      sixth , to further permanently reduce the Revolving Commitments to the full extent thereof.
          (c) Application of Prepayments of Loans by Type of Loan . Considering each Class of Loans being prepaid separately as set forth above, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to Section 2.17(c).
      2.15 General Provisions Regarding Payments.
          (a) All payments by Company of principal, interest, fees and other Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 1:00 p.m. (New York City time) on the date due at the Principal Office designated by the Administrative Agent for the account of Lenders; for purposes of computing interest and fees, funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day.
          (b) All payments in respect of the principal amount of any Loan (other than voluntary prepayments of Revolving Loans) shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal.
          (c) Administrative Agent (or its agent or sub-agent appointed by it) shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender’s applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, together with all other amounts due thereto, including, without limitation, all fees payable with respect thereto, to the extent received by Administrative Agent.
          (d) Notwithstanding the foregoing provisions hereof, if any Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter.
          (e) Subject to the provisos set forth in the definition of Interest Period as they may apply to Eurodollar Rate Loans, whenever any payment to be made hereunder with respect to any Loan shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and, with respect to Revolving Loans only, such extension of time shall

45


 

be included in the computation of the payment of interest hereunder or of the Revolving Commitment fees hereunder.
          (f) Company hereby authorizes Administrative Agent to charge Company’s accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose).
          (g) Administrative Agent shall deem any payment by or on behalf of Company hereunder that is not made in same day funds prior to 1:00 p.m. (New York City time) to be a non-conforming payment. Any such payment shall not be deemed to have been received by Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. Administrative Agent shall give prompt telephonic notice to Company and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 8.1(a). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the rate determined pursuant to Section 2.9 from the date such amount was due and payable until the date such amount is paid in full.
          (h) If an Event of Default shall have occurred and be continuing and not otherwise been waived, and the maturity of the Obligations shall have been accelerated pursuant to Section 8.1, notwithstanding Section 2.14, all payments or proceeds received by Agents hereunder in respect of any of the Obligations, shall be applied in accordance with the application arrangements described in Section 6.5 of the Pledge and Security Agreement.
      2.16 Ratable Sharing. Lenders hereby agree among themselves that, except as otherwise provided in the Collateral Documents with respect to amounts realized from the exercise of rights with respect to Liens on the Collateral, if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker’s lien, by counterclaim or cross action or by the enforcement of any right under the Credit Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other Credit Documents (collectively, the “Aggregate Amounts Due” to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided , if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such

46


 

recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker’s lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. The provisions of this Section 2.16 shall not be construed to apply to (a) any payment made by Company pursuant to and in accordance with the express terms of this Agreement or (b) any payment obtained by any Lender as consideration for the assignment or sale of a participation in any of its Loans or other Obligations owed to it.
      2.17 Making or Maintaining Eurodollar Rate Loans .
          (a) Inability to Determine Applicable Interest Rate . In the event that Administrative Agent shall have determined (which determination shall be prima facie evidence thereof), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Funding Notice or Conversion/Continuation Notice given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company.
          (b) Illegality or Impracticability of Eurodollar Rate Loans . In the event that on any date any Lender shall have determined (which determination shall be prima facie evidence thereof, but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an “Affected Lender” and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (1) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (2) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall make such Loan as (or continue such Loan as or convert such Loan to, as the case may be) a Base Rate Loan, (3) the Affected Lender’s obligation to maintain its outstanding Eurodollar Rate Loans (the “Affected Loans” ) shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (4) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, Company shall have the option, subject to the

47


 

provisions of Section 2.17(c), to rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 2.17(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms hereof.
          (c) Compensation for Breakage or Non-Commencement of Interest Periods . Company shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Funding Notice or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Conversion/Continuation Notice or a telephonic request for conversion or continuation; (ii) if any prepayment or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan; or (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company.
          (d) Booking of Eurodollar Rate Loans . Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender.
          (e) Assumptions Concerning Funding of Eurodollar Rate Loans . Calculation of all amounts payable to a Lender under this Section 2.17 and under Section 2.18 shall be made as though such Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided , however , each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.17 and under Section 2.18.
      2.18 Increased Costs; Capital Adequacy.
          (a) Compensation For Increased Costs and Taxes . Subject to the provisions of Section 2.19 (which shall be controlling with respect to the matters covered thereby), in the event that any Lender (which term shall include Issuing Bank for purposes of this Section 2.18(a)) shall determine (which determination shall be prima facie evidence thereof) that a change to or the adoption of any law, treaty or governmental rule, regulation or order, or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes

48


 

effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any franchise Tax or a Tax on the overall net income of such Lender) with respect to this Agreement or any of the other Credit Documents or any of its obligations hereunder or thereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.18(a), which statement shall be prima facie evidence thereof.
          (b) Capital Adequacy Adjustment . In the event that any Lender (which term shall include Issuing Bank for purposes of this Section 2.18(b)) shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender’s Loans or Revolving Commitments or Letters of Credit, or participations therein or other obligations hereunder with respect to the Loans or Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.18(b), which statement shall be prima facie evidence thereof.

49


 

          (c) Dodd-Frank Wall Street Reform and Consumer Protection Act . For purposes of this Section 2.18, the Dodd-Frank Wall Street Reform and Consumer Protection Act and all rules, regulations, orders, requests, guidelines or directives in connection therewith are deemed to have been adopted and gone into effect after the date of this Agreement.
          (d) Effect of Failure or Delay in Requesting Compensation . Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section 2.18 shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such compensation; provided that Company shall not be required to compensate a Lender or any Issuing Bank pursuant to this Section 2.18 for any increased costs or reduction in the rate of return on capital incurred more than 180 days prior to the date that such Lender or Issuing Bank, as the case may be, notifies Company of the matter giving rise to such increased costs or reduction in the rate of return on capital and of such Lender’s or such Issuing Bank’s intention to claim compensation therefor; provided, further that, if the matter giving rise to such increased costs or reduction in the rate of return on capital is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. No Lender or Issuing Bank may make any demand pursuant to this Section 2.18 more than 180 days after the Revolving Commitment Termination Date or the Term Loan Maturity Date, as applicable.
      2.19 Taxes; Withholding, etc.
          (a) Payments to Be Free and Clear . All sums payable by any Credit Party hereunder and under the other Credit Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a franchise Tax or a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of any Credit Party.
          (b) Withholding of Taxes . If any Credit Party or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by any Credit Party to Administrative Agent or any Lender (which term shall include Issuing Bank for purposes of this Section 2.19(b)) under any of the Credit Documents: (i) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (ii) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Credit Party) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (iii) the sum payable by such Credit Party in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within thirty (30) days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any Tax which it is required by clause (ii) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority;

50


 

provided , no such additional amount shall be required to be paid to any Lender or Administrative Agent under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any requirement mentioned therein for a deduction, withholding or payment shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender or Administrative Agent.
          (c) Evidence of Exemption From U.S. Withholding Tax. (i) Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. federal income tax purposes (a “Non-US Lender” ) shall deliver to Administrative Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (A) two original copies of Internal Revenue Service Form W-8BEN, W-8ECI and/or W-8IMY (or, in each case, any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Credit Documents, or (B) if such Lender is not a bank or other Person described in Section 881(c)(3) of the Internal Revenue Code, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8BEN (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Credit Documents. Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this Section 2.19(c) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to Administrative Agent for transmission to Company two new original copies of Internal Revenue Service Form W-8BEN, W-8ECI and/or W-8IMY (or, in each case, any successor form), or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8BEN (or any successor form), as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Credit Documents, or notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. Company shall not be required to pay any additional amount to any Non-US Lender under Section 2.19(b)(iii) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the first sentence of this Section 2.19(c), or (2) to notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided , if such Lender shall have satisfied the requirements of the first sentence of this Section 2.19(c) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became

51


 

a Lender, as applicable, nothing in this last sentence of Section 2.19(c) shall relieve Company of its obligation to pay any additional amounts pursuant to Section 2.18(a) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein.
               (ii) If any non-corporate Lender is a United States Person as such term is defined in the Internal Revenue Code, such Lender shall deliver to Administrative Agent on or prior to the Closing Date or on or prior to the date of the Assignment Agreement, pursuant to which it becomes a Lender (in the case of each other Lender) two original copies of Internal Revenue Service Form W-9 (or any successor forms), properly completed and duly executed by such Lender and such other documentation required under the Internal Revenue Code to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to such principal, interest, fees or other amounts payable under the any of the Credit Documents.
      2.20 Obligation to Mitigate. Each Lender (which term shall include Issuing Bank for purposes of this Section 2.20) agrees that, as promptly as practicable after the officer of such Lender responsible for administering its Loans or Letters of Credit, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 2.17, 2.18 or 2.19, it will, to the extent not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use reasonable efforts to (a) make, issue, fund or maintain its Credit Extensions, including any Affected Loans, through another office of such Lender, or (b) take such other measures as such Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Section 2.17, 2.18 or 2.19 would be materially reduced and if, as determined by such Lender in its sole but reasonable discretion, the making, issuing, funding or maintaining of such Revolving Commitments, Loans or Letters of Credit through such other office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such Revolving Commitments, Loans or Letters of Credit or the interests of such Lender; provided , such Lender will not be obligated to utilize such other office pursuant to this Section 2.20 unless Company agrees to pay all incremental expenses incurred by such Lender as a result of utilizing such other office as described above. A certificate as to the amount of any such expenses payable by Company pursuant to this Section 2.20 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Company (with a copy to Administrative Agent) shall be prima facie evidence thereof.
      2.21 Defaulting Lenders . Anything contained herein to the contrary notwithstanding, if any Lender, (x) other than at the direction or request of any regulatory agency or authority, defaults (a “Funds Defaulting Lender” ) in its obligation to fund (a “Funding Default” ) any Revolving Loan or its portion of any unreimbursed payment under Section 2.3(b)(iv) or Section 2.23(e) (in each case, a “Defaulted Loan” ) or (y) is deemed insolvent or becomes the subject of an insolvency, bankruptcy, dissolution, liquidation or reorganization proceeding, or if any Lender or any substantial part of its property becomes the subject of an appointment of a receiver, intervenor or conservator, or a trustee or similar officer, or becomes the subject of a bankruptcy proceeding (a “ Lender Insolvency Default ”) under the Bankruptcy Code or under any other applicable bankruptcy, insolvency, conservatorship,

52


 

receivership or similar law now or hereafter in effect (such Lender, an “ Insolvency Defaulting Lender ” and, together with any Funds Defaulting Lenders, the “ Defaulting Lenders ” and each a “ Defaulting Lender ”), then: (a) during any Default Period with respect to such Defaulting Lender, such Defaulting Lender shall be deemed not to be a “Lender” for purposes of calculating Requisite Lenders or Requisite Class Lenders (including the granting of any consents or waivers) with respect to any of the Credit Documents and Company shall pay to Administrative Agent such additional amounts of cash as reasonably requested by the Issuing Bank or the Swing Line Lender to be held as security for Company’s reimbursement Obligations in respect of Letters of Credit and Swing Line Loans then outstanding (such amount not to exceed such Defaulting Lender’s obligations under Sections 2.3 and 2.23); (b) solely with respect to any Funds Defaulting Lender that is not an Insolvency Defaulting Lender, to the extent permitted by applicable law, until such time as the Default Excess with respect to such Defaulting Lender shall have been reduced to zero, (i) any voluntary prepayment of the Revolving Loans shall, if Company so directs at the time of making such voluntary prepayment, be applied to the Revolving Loans of other Lenders as if such Defaulting Lender had no Revolving Loans outstanding and the Revolving Exposure of such Defaulting Lender were zero, and (ii) any mandatory prepayment of the Revolving Loans shall, if Company so directs at the time of making such mandatory prepayment, be applied to the Revolving Loans of other Lenders (but not to the Revolving Loans of such Defaulting Lender) as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender, it being understood and agreed that Company shall be entitled to retain any portion of any mandatory prepayment of the Revolving Loans that is not paid to such Defaulting Lender solely as a result of the operation of the provisions of this clause (b); (c) such Defaulting Lender’s Revolving Commitment and outstanding Revolving Loans and such Defaulting Lender’s Pro Rata Share of the Letter of Credit Usage shall be excluded for purposes of calculating the Revolving Commitment fee payable to Lenders in respect of any day during any Default Period with respect to such Defaulting Lender, and such Defaulting Lender shall not be entitled to receive any Revolving Commitment fee pursuant to Section 2.10 with respect to such Defaulting Lender’s Revolving Commitment in respect of any Default Period with respect to such Defaulting Lender; and (d) the Total Utilization of Revolving Commitments as at any date of determination shall be calculated as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender. No Revolving Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this Section 2.21, performance by Company of its obligations hereunder and the other Credit Documents shall not be excused or otherwise modified as a result of any Funding Default or Lender Insolvency Default or the operation of this Section 2.21. The rights and remedies against a Defaulting Lender under this Section 2.21 are in addition to other rights and remedies which Company may have against such Defaulting Lender with respect to any Funding Default or Lender Insolvency Default and which Administrative Agent or any Lender may have against such Defaulting Lender with respect to any Funding Default or Lender Insolvency Default.
      2.22 Removal or Replacement of a Lender . Anything contained herein to the contrary notwithstanding, in the event that: (a) any Lender (an “Increased-Cost Lender” ) shall give notice to Company that such Lender is an Affected Lender or that such Lender is entitled to receive payments under Section 2.17, 2.18 or 2.19, the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and such Lender shall fail to withdraw such notice within five Business Days after Company’s request for such withdrawal; or (b) any Lender shall become a Defaulting Lender, the Default Period for such Defaulting Lender shall remain in effect, and such Defaulting Lender shall fail to cure the default as a result of which it has become a Defaulting Lender within five Business Days after Company’s request

53


 

that it cure such default; or (c) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 10.5(b), the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a “Non-Consenting Lender” ) whose consent is required shall not have been obtained; then, with respect to each such Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the “Terminated Lender” ), Company may, by giving written notice to Administrative Agent and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Loans and its Revolving Commitments, if any, in full to one or more Eligible Assignees (each a “Replacement Lender” ) in accordance with the provisions of Section 10.6 and Terminated Lender shall pay any fees payable thereunder in connection with such assignment (other than with respect to any Terminated Lender that is an Insolvency Defaulting Lender, in which case such fees shall be payable by Company); provided , (1) on the date of such assignment, the Replacement Lender shall pay to Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Terminated Lender, (B) an amount equal to all unreimbursed drawing that have been funded by such Terminated Lender, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid fees owing to such Terminated Lender pursuant to Section 2.10; (2) on the date of such assignment, Company shall pay any amounts payable to such Terminated Lender pursuant to Section 2.17(c), 2.18 or 2.19 or otherwise as if it were a prepayment; and (3) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender; provided , Company may not make such election with respect to any Terminated Lender that is also an Issuing Bank unless, prior to the effectiveness of such election, Company shall have caused each outstanding Letter of Credit issued thereby to be cancelled. Upon the prepayment of all amounts owing to any Terminated Lender and the termination of such Terminated Lender’s Revolving Commitments, if any, such Terminated Lender shall no longer constitute a Lender for purposes hereof; provided , any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender. Each Lender agrees that if Company exercises its option hereunder to cause an assignment by such Lender as a Non-Consenting Lender or Terminated Lender, such Lender shall, promptly after receipt of written notice of such election, execute and deliver all documentation necessary to effectuate such assignment in accordance with Section 10.6. In the event that a Lender does not comply with the requirements of the immediately preceding sentence within one Business Day after receipt of such notice, each Lender hereby authorizes and directs the Administrative Agent to execute and deliver such documentation as may be required to give effect to an assignment in accordance with Section 10.6 on behalf of a Non-Consenting Lender or Terminated Lender and any such documentation so executed by the Administrative Agent shall be effective for purposes of documenting an assignment pursuant to Section 10.6.
      2.23 Issuance of Letters of Credit and Purchase of Participations Therein .
          (a) Letters of Credit . During the Revolving Commitment Period, subject to the terms and conditions hereof, Issuing Bank agrees to issue Letters of Credit for the account of Company in the aggregate amount up to but not exceeding the Letter of Credit Sublimit; provided , (i) each Letter of Credit shall be denominated in Dollars; (ii) the stated amount of each Letter of Credit shall not be less than $10,000 or such lesser amount as is acceptable to Issuing Bank; (iii) after giving effect to such issuance, in no event shall the Total Utilization of Revolving Commitments exceed the

54


 

Revolving Commitments then in effect; (iv) after giving effect to such issuance, in no event shall the Letter of Credit Usage exceed the Letter of Credit Sublimit then in effect; (v) in no event shall any standby Letter of Credit have an expiration date later than the earlier of (1) the Revolving Commitment Termination Date and (2) the date which is one year from the date of issuance of such standby Letter of Credit; and (vi) in no event shall any commercial Letter of Credit (x) have an expiration date later than the earlier of (1) the Revolving Loan Commitment Termination Date and (2) the date which is 180 days from the date of issuance of such commercial Letter of Credit or (b) be issued if such commercial Letter of Credit is otherwise unacceptable to Issuing Bank in its reasonable discretion. Subject to the foregoing, Issuing Bank may agree that a standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each, unless Issuing Bank elects not to extend for any such additional period; provided , Issuing Bank shall not extend any such Letter of Credit if it has received written notice that an Event of Default has occurred and is continuing at the time Issuing Bank must elect to allow such extension; provided , further , in the event a Funding Default or Lender Insolvency Default exists, Issuing Bank shall not be required to issue any Letter of Credit unless Issuing Bank has entered into arrangements satisfactory to it and Company to eliminate Issuing Bank’s risk with respect to the participation in Letters of Credit of the Defaulting Lender, including by cash collateralizing such Defaulting Lender’s Pro Rata Share of the Letter of Credit Usage.
          (b) Notice of Issuance . Whenever Company desires the issuance of a Letter of Credit, it shall deliver to Administrative Agent an Issuance Notice no later than 12:00 p.m. (New York City time) at least three Business Days (in the case of standby letters of credit) or five Business Days (in the case of commercial letters of credit), or in each case such shorter period as may be agreed to by Issuing Bank in any particular instance, in advance of the proposed date of issuance. Upon satisfaction or waiver of the conditions set forth in Section 3.2, Issuing Bank shall issue the requested Letter of Credit only in accordance with Issuing Bank’s standard operating procedures. Upon the issuance of any Letter of Credit or amendment or modification to a Letter of Credit, Issuing Bank shall promptly notify each Lender with a Revolving Commitment of such issuance, which notice shall be accompanied by a copy of such Letter of Credit or amendment or modification to a Letter of Credit and the amount of such Lender’s respective participation in such Letter of Credit pursuant to Section 2.23(e).
          (c) Responsibility of Issuing Bank With Respect to Requests for Drawings and Payments . In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, Issuing Bank shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. As between Company and Issuing Bank, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by Issuing Bank, by the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, Issuing Bank shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and 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; (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) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit;

55


 

(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 Issuing Bank, including any Governmental Acts; none of the above shall affect or impair, or prevent the vesting of, any of Issuing Bank’s rights or powers hereunder. Without limiting the foregoing and in furtherance thereof, any action taken or omitted by Issuing Bank under or in connection with the Letters of Credit or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not give rise to any liability on the part of Issuing Bank to Company. Notwithstanding anything to the contrary contained in this Section 2.23(c), Company shall retain any and all rights it may have against Issuing Bank for any liability arising solely out of the gross negligence or willful misconduct of Issuing Bank.
          (d) Reimbursement by Company of Amounts Drawn or Paid Under Letters of Credit . In the event Issuing Bank has determined to honor a drawing under a Letter of Credit, it shall immediately notify Company and Administrative Agent, and Company shall reimburse Issuing Bank on or before the Business Day immediately following the date on which such drawing is honored (the “Reimbursement Date” ) in an amount in Dollars and in same day funds equal to the amount of such honored drawing; provided , anything contained herein to the contrary notwithstanding, (i) unless Company shall have notified Administrative Agent and Issuing Bank prior to 10:00 a.m. (New York City time) on the date such drawing is honored that Company intends to reimburse Issuing Bank for the amount of such honored drawing with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Funding Notice to Administrative Agent requesting Lenders with Revolving Commitments to make Revolving Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount of such honored drawing, and (ii) subject to satisfaction or waiver of the conditions specified in Section 3.2, Lenders with Revolving Commitments shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount of such honored drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse Issuing Bank for the amount of such honored drawing; and provided further , if for any reason proceeds of Revolving Loans are not received by Issuing Bank on the Reimbursement Date in an amount equal to the amount of such honored drawing, Company shall reimburse Issuing Bank, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this Section 2.23(d) shall be deemed to relieve any Lender with a Revolving Commitment from its obligation to make Revolving Loans on the terms and conditions set forth herein, and Company shall retain any and all rights it may have against any Lender resulting from the failure of such Lender to make such Revolving Loans under this Section 2.23(d).
          (e) Lenders’ Purchase of Participations in Letters of Credit . Immediately upon the issuance of each Letter of Credit, each Lender having a Revolving Commitment shall be deemed to have purchased, and hereby agrees to irrevocably purchase, from Issuing Bank a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Lender’s Pro Rata Share (with respect to the Revolving Commitments) of the maximum amount which is or at any time may become available to be drawn thereunder. In the event that Company shall fail for any reason to reimburse Issuing Bank as provided in Section 2.23(d), Issuing Bank shall promptly notify each

56


 

Lender with a Revolving Commitment of the unreimbursed amount of such honored drawing and of such Lender’s respective participation therein based on such Lender’s Pro Rata Share of the Revolving Commitments. Each Lender with a Revolving Commitment shall make available to Issuing Bank an amount equal to its respective participation, in Dollars and in same day funds, at the office of Issuing Bank specified in such notice, not later than 12:00 p.m. (New York City time) on the first business day (under the laws of the jurisdiction in which such office of Issuing Bank is located) after the date notified by Issuing Bank. In the event that any Lender with a Revolving Commitment fails to make available to Issuing Bank on such business day the amount of such Lender’s participation in such Letter of Credit as provided in this Section 2.23(e), Issuing Bank shall be entitled to recover such amount on demand from such Lender together with interest thereon for three Business Days at the rate customarily used by Issuing Bank for the correction of errors among banks and thereafter at the Base Rate. Nothing in this Section 2.23(e) shall be deemed to prejudice the right of any Lender with a Revolving Commitment to recover from Issuing Bank any amounts made available by such Lender to Issuing Bank pursuant to this Section in the event that it is determined that the payment with respect to a Letter of Credit in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of Issuing Bank. In the event Issuing Bank shall have been reimbursed by other Lenders pursuant to this Section 2.23(e) for all or any portion of any drawing honored by Issuing Bank under a Letter of Credit, such Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under this Section 2.23(e) with respect to such honored drawing such Lender’s Pro Rata Share of all payments subsequently received by Issuing Bank from Company in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on Appendix B or at such other address as such Lender may request.
          (f) Obligations Absolute . The obligation of Company to reimburse Issuing Bank for drawings honored under the Letters of Credit issued by it and to repay any Revolving Loans made by Lenders pursuant to Section 2.23(d) and the obligations of Lenders under Section 2.23(e) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms hereof under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Company or any Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), Issuing Bank, Lender or any other Person or, in the case of a Lender, against Company, whether in connection herewith, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Company or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by Issuing Bank under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any of its Subsidiaries; (vi) any breach hereof or of any other Credit Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Default shall have occurred and be continuing; provided , in each case, that payment by Issuing Bank under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of Issuing Bank under the circumstances in question.

57


 

     (g)  Indemnification . Without duplication of any obligation of Company under Section 10.2 or 10.3, in addition to amounts payable as provided herein, Company hereby agrees to protect, indemnify, pay and save harmless Issuing Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which Issuing Bank may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by Issuing Bank, other than as a result of (1) the gross negligence or willful misconduct of Issuing Bank, as determined by a final, non-appealable judgment of a court of competent jurisdiction, or (2) the wrongful dishonor by Issuing Bank of a proper demand for payment made under any Letter of Credit issued by it, or (ii) the failure of Issuing Bank to honor a drawing under any such Letter of Credit as a result of its compliance with any Governmental Act.
      2.24 Incremental Facilities . Company may by written notice to Administrative Agent elect to request (A) prior to the Revolving Commitment Termination Date, an increase to the existing Revolving Loan Commitments (any such increase, the “New Revolving Loan Commitments” ) and/or (B) the establishment of one or more new term loan commitments (the “New Term Loan Commitments” ), by an amount not in excess of $100,000,000 in the aggregate and not less than $10,000,000 individually (or such lesser amount which shall be approved by Administrative Agent), and integral multiples of $1,000,000 in excess of that amount. Each such notice shall specify (A) the date (each, an “Increased Amount Date” ) on which Company proposes that the New Revolving Loan Commitments or New Term Loan Commitments, as applicable, shall be effective, which shall be a date not less than 10 Business Days after the date on which such notice is delivered to Administrative Agent (or such later date as may be agreed to by the Administrative Agent), and (B) the identity of each Lender or other Person that is an Eligible Assignee (each, a “New Revolving Loan Lender” or “New Term Loan Lender”, as applicable) to whom Company proposes any portion of such New Revolving Loan Commitments or New Term Loan Commitments, as applicable, be allocated and the amounts of such allocations; provided that any Lender approached to provide all or a portion of the New Revolving Loan Commitments or New Term Loan Commitments may elect or decline, in its sole discretion, to provide a New Revolving Loan Commitment or New Term Loan Commitment. Such New Revolving Loan Commitments or New Term Loan Commitments shall become effective, as of such Increased Amount Date; provided that (1) no Default or Event of Default shall exist on such Increased Amount Date before or after giving effect to such New Revolving Loan Commitments or New Term Loan Commitments, as applicable; (2) both before and after giving effect to the making of any Series of New Term Loans, each of the conditions set forth in Section 3.2 shall be satisfied; (3) Company and its Subsidiaries shall be in pro forma compliance with each of the covenants set forth in Section 6.8 as of the last day of the most recently ended Fiscal Quarter after giving effect to such New Revolving Loan Commitments or New Term Loan Commitments, as applicable; (4) the New Revolving Loan Commitments or New Term Loan Commitments, as applicable, shall be effected pursuant to one or more Joinder Agreements executed and delivered by the New Revolving Loan Lender or New Term Loan Lender, as applicable, Company and the Administrative Agent, each of which Joinder Agreements shall be recorded in the Register and each New Revolving Loan Lender or New Term Loan Lender, as applicable, shall be subject to the requirements set forth in Section 2.19(c); (5) Company shall make any payments required pursuant to such Joinder Agreements and pursuant to Section 2.17(c) in connection with the New Revolving Loan Commitments or New Term Loan Commitments; and (6) Company shall deliver or cause to be delivered any legal opinions or other documents reasonably requested by Administrative Agent in

58


 

connection with any such transaction. Any New Term Loans made on an Increased Amount Date shall be designated a separate series (a “Series” ) of New Term Loans for all purposes of this Agreement.
     On any Increased Amount Date on which New Revolving Loan Commitments are effected, subject to the satisfaction of the foregoing terms and conditions, (a) each of the Revolving Lenders shall assign to each of the New Revolving Loan Lenders, and each of the New Revolving Loan Lenders shall purchase from each of the Revolving Lenders, at the principal amount thereof (together with accrued interest), such interests in the Revolving Loans outstanding on such Increased Amount Date as shall be necessary in order that, after giving effect to all such assignments and purchases, such Revolving Loans will be held by existing Revolving Lenders and New Revolving Loan Lenders ratably in accordance with their Revolving Commitments after giving effect to the addition of such New Revolving Loan Commitments to the Revolving Commitments, (b) each New Revolving Loan Commitment shall be deemed for all purposes a Revolving Commitment and each Loan made thereunder (a “New Revolving Loan” ) shall be deemed, for all purposes, a Revolving Loan and (c) each New Revolving Loan Lender shall become a Lender with respect to the Revolving Loans and all matters relating thereto.
     On any Increased Amount Date on which any New Term Loan Commitments of any Series are effective, subject to the satisfaction of the foregoing terms and conditions, (i) each New Term Loan Lender of any Series shall make a Loan to Company (a “New Term Loan” ) in an amount equal to its New Term Loan Commitment of such Series, and (ii) each New Term Loan Lender of any Series shall become a Lender hereunder with respect to the New Term Loan Commitment of such Series and the New Term Loans of such Series made pursuant thereto.
     Administrative Agent shall notify Lenders promptly upon receipt of Company’s notice of each Increased Amount Date and in respect thereof (y) the New Revolving Loan Commitments and the New Revolving Loan Lenders or the Series of New Term Loan Commitments and the New Term Loan Lenders of such Series, as applicable, and (z) in the case of each notice to any Revolving Lender, the respective interests in such Revolving Lender’s Revolving Loans, in each case subject to the assignments contemplated by this Section.
     The terms and provisions of the New Revolving Loans shall be identical to the Revolving Loans. The terms and provisions of the New Term Loans and New Term Loan Commitments of any Series shall be, except as otherwise set forth below or in the Joinder Agreement (in which case they must be reasonably satisfactory to the Administrative Agent in its discretion), identical to the Closing Date Term Loans. In any event (i) the weighted average life to maturity of all New Term Loans of any Series shall be no shorter than the remaining weighted average life to maturity of the Closing Date Term Loans, (ii) the applicable New Term Loan Maturity Date of each Series shall be no shorter than the final maturity of the Closing Date Term Loans, and (iii) the yield applicable to the New Term Loans of each Series shall be as determined by Company and the applicable new Lenders and shall be set forth in each applicable Joinder Agreement; provided however that the yield applicable to the New Term Loans (after giving effect to all upfront or similar fees or original issue discount payable with respect to such New Term Loans and any minimum Adjusted Eurodollar Rate or minimum Base Rate) shall not be greater than the applicable yield payable pursuant to the terms of this Agreement as amended through the date of such calculation with respect to the Closing Date Term Loans (including any upfront fees or original issue discount payable to the initial Lenders hereunder) plus 0.25% per annum unless the interest rate with respect to the Closing Date Term Loans is increased so as to equal

59


 

the yield applicable to the New Term Loans (after giving effect to all upfront or similar fees or original issue discount payable with respect to such New Term Loans and any minimum Adjusted Eurodollar Rate or minimum Base Rate) less 0.25% per annum. Each Joinder Agreement may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Credit Documents as may be necessary or appropriate, in the opinion of the Administrative Agent, to effect the provisions of this Section 2.24.
     For the avoidance of doubt, any New Term Loans, New Term Loan Commitments, New Revolving Loans and New Revolving Loan Commitments shall constitute Obligations, Guaranteed Obligations and Secured Obligations of the Credit Parties and shall rank pari passu with the Closing Date Term Loans, Revolving Commitments and Revolving Loans.
SECTION 3. CONDITIONS PRECEDENT
      3.1 Closing Date . The obligation of any Lender to make a Credit Extension on the Closing Date is subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions on or before the Closing Date:
          (a) Credit Documents . Administrative Agent shall have received sufficient copies of each Credit Document (other than the Notes) originally executed and delivered by each applicable Credit Party for each Lender and shall have received an executed Note or Notes for each Lender requesting a Note or Notes.
          (b) Organizational Documents; Incumbency . Administrative Agent shall have received (i) copies of the Organizational Documents of each Credit Party, to the extent applicable, certified as of a recent date by the appropriate governmental official, each dated the Closing Date or a recent date prior thereto; (ii) signature and incumbency certificates of the officers of each Credit Party executing the Credit Documents to which it is a party; (iii) resolutions of the Board of Directors or similar governing body of each Credit Party approving and authorizing the execution, delivery and performance of this Agreement and the other Credit Documents or by which it or its assets may be bound as of the Closing Date, certified as of the Closing Date by its secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) a good standing certificate from the applicable Governmental Authority of each Credit Party’s jurisdiction of incorporation, organization or formation, each dated a recent date prior to the Closing Date; and (v) such other documents as Administrative Agent may reasonably request.
          (c) Organizational and Capital Structure . The organizational structure and capital structure of Holdings and its Subsidiaries, shall be as set forth on Schedule 4.1.
          (d) Existing Credit Agreement . On the Closing Date, Holdings and its Subsidiaries shall have (i) repaid in full the Existing Credit Agreement, (ii) terminated any commitments to lend or make other extensions of credit thereunder, and (iii) delivered to Administrative Agent all documents or instruments necessary to release all Liens securing the Existing Credit Agreement or other obligations of Holdings and its Subsidiaries thereunder being repaid on the Closing Date.
          (e) Transaction Costs . On or prior to the Closing Date, Company shall have delivered to Administrative Agent Company’s reasonable best estimate of the Transaction Costs (other than fees payable to any Agent).

60


 

          (f) Governmental Authorizations and Consents . Each Credit Party shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the transactions contemplated by the Credit Documents and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to Administrative Agent. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Credit Documents or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired.
          (g) Solvency Certificate . On the Closing Date, Administrative Agent shall have received a Solvency Certificate in form, scope and substance satisfactory to Administrative Agent, and demonstrating that after giving effect to the financings and the other transactions contemplated by the Credit Documents to occur on or prior to the Closing Date and any rights of contribution, each Credit Party is and will be Solvent.
          (h) Personal Property Collateral . In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and perfected First Priority security interest in the personal property Collateral, Collateral Agent shall have received:
               (i) evidence satisfactory to the Collateral Agent of the compliance by each Credit Party of their obligations under the Pledge and Security Agreement and the other Collateral Documents (including, without limitation, their obligations to execute and deliver UCC financing statements, originals of securities, instruments and chattel paper);
               (ii) a completed UCC Questionnaire dated the Closing Date and executed by an Authorized Officer of each Credit Party, together with all attachments contemplated thereby;
               (iii) evidence that each Credit Party shall have taken or caused to be taken any other action, executed and delivered or caused to be executed and delivered any other agreement, document and instrument and made or caused to be made any other filing and recording (other than as set forth herein) reasonably required by Collateral Agent.
          (i) Financial Statements; Projections . Lenders shall have received from Holdings (i) the Historical Financial Statements, (ii) pro forma consolidated financial statements of Holdings and its Subsidiaries as of the last day of and for the four-quarter period most recently ended prior to the Closing Date for which financial statements are available, giving pro forma effect to the financings and the other transactions contemplated by the Credit Documents to occur on or prior to the Closing Date, which pro forma financial statements shall be in form and substance satisfactory to Administrative Agent, and (iii) projected consolidated financial statements of Holdings and its Subsidiaries, which will be quarterly for the first year after the Closing Date and annually thereafter through and including 2015 (the “Projections” ), which Projections shall not be inconsistent with information provided to the Lead Arrangers prior to the delivery of the Commitment Letter.
          (j) Evidence of Insurance . Administrative Agent shall have received a certificate from Holdings’ insurance broker or other evidence satisfactory to it that all insurance required to be

61


 

maintained pursuant to Section 5.5 is in full force and effect and that Collateral Agent, for the benefit of the Secured Parties has been named as additional insured and loss payee thereunder to the extent required under Section 5.5, together with endorsements reasonably requested by Collateral Agent.
          (k) Opinion of Counsel to Credit Parties . Lenders and their respective counsel shall have received originally executed copies of the favorable written opinion of Akin Gump Strauss Hauer & Feld LLP, counsel for Credit Parties, dated as of the Closing Date and in form and substance reasonably satisfactory to Administrative Agent.
          (l) Fees . Company shall have paid to the Agents the fees payable on the Closing Date referred to in Section 2.10(e).
          (m) Closing Date Certificate . Holdings and Company shall have delivered to the Administrative Agent an originally executed Closing Date Certificate, together with all attachments thereto.
          (n) No Litigation . There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority that, in the reasonable opinion of Administrative Agent, singly or in the aggregate, materially impairs the transactions contemplated by the Credit Documents, or that could have a Material Adverse Effect.
          (o) Completion of Proceedings . All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent or Syndication Agent and its counsel shall be satisfactory in form and substance to Administrative Agent and Syndication Agent and such counsel, and Administrative Agent, Syndication Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent or Syndication Agent may reasonably request.
          (p) Funding Notice . Company shall have delivered to Administrative Agent a fully executed Funding Notice with respect to the Closing Date Term Loans and any Revolving Loans to be made on the Closing Date.
          (q) Credit Rating . If requested by the Lead Arrangers in connection the financings and the other transactions contemplated by the Credit Documents to occur on or prior to the Closing Date, Company shall have received a refreshed corporate family rating and a refreshed corporate rating, respectively, from each of Moody’s and S&P, and the Closing Date Term Loans shall have been assigned a credit rating from each of Moody’s and S&P.
          (r) Closing Date . Lenders shall have made the Closing Date Term Loans to Company on or before September 17, 2010.
          (s) Patriot Act . At least 10 days prior to the Closing Date, the Lenders shall have received all documentation and other information required by bank regulatory authorities under applicable “know-your-customer” and anti-money laundering rules and regulations, including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and

62


 

Obstruct Terrorism Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001) the “ Patriot Act ”).
     Each Lender, by delivering its signature page to this Agreement and funding a Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date.
      3.2 Conditions to Each Credit Extension.
          (a) Conditions Precedent . The obligation of each Lender to make any Loan, or Issuing Bank to issue any Letter of Credit, on any Credit Date, including the Closing Date, are subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions precedent:
               (i) Administrative Agent shall have received a fully executed and delivered Funding Notice;
               (ii) after making the Credit Extensions requested on such Credit Date, the Total Utilization of Revolving Commitments shall not exceed the Revolving Commitments then in effect;
               (iii) as of such Credit Date, the representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects on and as of that Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; provided that, in each case, the foregoing materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof;
               (iv) as of such Credit Date, no event shall have occurred and be continuing or would result from the consummation of the applicable Credit Extension that would constitute an Event of Default or a Default; and
               (v) on or before the date of issuance of any Letter of Credit, Administrative Agent shall have received (i) a fully executed and delivered Issuance Notice, (ii) all other information required by the applicable Issuance Notice and (iii) such other documents or information as Issuing Bank may reasonably require in connection with the issuance of such Letter of Credit.
          (b) Notices . Any Notice shall be executed by an Authorized Officer in a writing delivered to Administrative Agent. In lieu of delivering a Notice, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing, conversion/continuation or issuance of a Letter of Credit, as the case may be; provided each such notice shall be promptly confirmed in writing by delivery of the applicable Notice to Administrative Agent on or before the applicable date of borrowing or continuation/conversion. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized on behalf of Company or for otherwise acting in good faith.

63


 

SECTION 4. REPRESENTATIONS AND WARRANTIES
     In order to induce Lenders and Issuing Bank to enter into this Agreement and to make each Credit Extension to be made thereby, each Credit Party represents and warrants to each Lender and Issuing Bank, on the Closing Date and on each Credit Date, that the following statements are true and correct:
      4.1 Organization; Requisite Power and Authority; Qualification . Each of Holdings and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in Schedule 4.1, (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Credit Documents to which it is a party and to carry out the transactions contemplated thereby, and (c) is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had, and could not be reasonably expected to have, a Material Adverse Effect.
      4.2 Capital Stock and Ownership . The Capital Stock of each of Holdings and its Subsidiaries has been duly authorized and validly issued and is fully paid and non-assessable. Except as set forth on Schedule 4.2, as of the date hereof, there is no existing option, warrant, call, right, commitment or other agreement to which Holdings or any of its Subsidiaries is a party requiring, and there is no membership interest or other Capital Stock of Holdings or any of its Subsidiaries outstanding which upon conversion or exchange would require, the issuance by Holdings or any of its Subsidiaries of any additional membership interests or other Capital Stock of Holdings or any of its Subsidiaries or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, a membership interest or other Capital Stock of Holdings or any of its Subsidiaries. Schedule 4.2 correctly sets forth the ownership interest of Holdings and each of its Subsidiaries in their respective Subsidiaries as of the Closing Date.
      4.3 Due Authorization . The execution, delivery and performance of the Credit Documents have been duly authorized by all necessary action on the part of each Credit Party that is a party thereto.
      4.4 No Conflict . The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not (a) violate any provision of any law or any governmental rule or regulation applicable to Holdings or any of its Subsidiaries, any of the Organizational Documents of Holdings or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Holdings or any of its Subsidiaries except to the extent such violation could not be reasonably expected to have a Material Adverse Effect; (b) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Holdings or any of its Subsidiaries except to the extent such conflict, breach or default could not reasonably be expected to have a Material Adverse Effect; (c) result in or require the creation or imposition of any Lien upon any of the properties or assets of Holdings or any of its Subsidiaries (other than any Liens created under any of the Credit Documents in favor of Collateral Agent, on behalf of Secured Parties); or (d) require any approval of stockholders, members or partners or any approval or consent of any Person under any Contractual Obligation of Holdings or any of its

64


 

Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders and except for any such approvals or consents the failure of which to obtain will not have a Material Adverse Effect.
      4.5 Governmental Consents . The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Collateral Agent for filing and/or recordation, as of the Closing Date.
      4.6 Binding Obligation . Each Credit Document has been duly executed and delivered by each Credit Party that is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.
      4.7 Historical Financial Statements . The Historical Financial Statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position, on a consolidated basis, of the Persons described in such financial statements as at the respective dates thereof and the results of operations and cash flows, on a consolidated basis, of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. As of the Closing Date, neither Holdings nor any of its Subsidiaries has any contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the Historical Financial Statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and any of its Subsidiaries taken as a whole.
      4.8 [Reserved] .
      4.9 No Material Adverse Change . Since December 31, 2009, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.
      4.10 No Restricted Junior Payments . Since December 31, 2009, neither Holdings nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to do so except as permitted pursuant to Section 6.5.
      4.11 Adverse Proceedings, etc . There are no Adverse Proceedings, individually or in the aggregate, that could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries (a) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (b) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department,

65


 

commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
      4.12 Payment of Taxes . Except as otherwise permitted under Section 5.3, all federal and state income tax returns and all other material tax returns and reports of Holdings and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all material assessments, fees and other governmental charges upon Holdings and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Holdings knows of no proposed tax assessment against Holdings or any of its Subsidiaries which is not being actively contested by Holdings or such Subsidiary in good faith and by appropriate proceedings; provided , such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor.
      4.13 Properties .
          (a) Title . Each of Holdings and its Subsidiaries has (i) good, sufficient and marketable legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), and (iii) good title to (in the case of all other personal property), all of their respective properties and assets reflected in their respective Historical Financial Statements referred to in Section 4.7 and in the most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under Section 6.9. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens.
          (b) Real Estate . As of the Closing Date, Schedule 4.13 contains a true, accurate and complete list of (i) all Real Estate Assets, and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Estate Asset of any Credit Party, regardless of whether such Credit Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Each agreement listed in clause (ii) of the immediately preceding sentence is in full force and effect and Holdings does not have knowledge of any default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of each applicable Credit Party, enforceable against such Credit Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles.
      4.14 Environmental Matters . Neither Holdings nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to any Environmental Law, any Environmental Claim, to the knowledge of Holdings or any of its Subsidiaries, or any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries has received any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9604) or any comparable state law. There are and, to each of Holdings’ and its Subsidiaries’ knowledge, have been, no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Holdings or any of its

66


 

Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries nor, to any Credit Party’s knowledge, any predecessor of Holdings or any of its Subsidiaries has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, and none of Holdings’ or any of its Subsidiaries’ operations involves the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent except for such filings, generation, transportation, treatment, storage or disposal that could not reasonably be expected to have a Material Adverse Effect. Compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws could not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. No event or condition has occurred or is occurring with respect to Holdings or any of its Subsidiaries relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity which individually or in the aggregate has had, or could reasonably be expected to have, a Material Adverse Effect.
      4.15 No Defaults . Neither Holdings nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists which, with the giving of notice or the lapse of time or both, could constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect.
      4.16 Governmental Regulation . Neither Holdings nor any of its Subsidiaries is subject to regulation under the Federal Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Neither Holdings nor any of its Subsidiaries is a registered investment company or is controlled by a registered investment company or a principal underwriter of a registered investment company as such terms are defined in the Investment Company Act of 1940.
      4.17 Margin Stock . Neither Holdings nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans made to such Credit Party will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.
      4.18 Employee Matters . Neither Holdings nor any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (a) no unfair labor practice complaint pending against Holdings or any of its Subsidiaries, or to the best knowledge of Holdings and Company, threatened against any of them before the National Labor Relations Board and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement that is so pending against Holdings or any of its Subsidiaries or to the best knowledge of Holdings and Company, threatened against any of them, (b) no strike or work stoppage in existence or threatened involving Holdings or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect, and (c) to the best knowledge of Holdings and Company, no union representation question existing with respect to the employees of Holdings or any of its Subsidiaries and, to the best knowledge of Holdings and Company, no union organization activity that

67


 

is taking place, except (with respect to any matter specified in clause (a), (b) or (c) above, either individually or in the aggregate) such as is not reasonably likely to have a Material Adverse Effect.
      4.19 Employee Benefit Plans . Holdings, each of its Subsidiaries and each of their respective ERISA Affiliates are in material compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have substantially performed all their obligations under each Employee Benefit Plan. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service or an application for such a letter is currently being processed by the Internal Revenue Service with respect thereto and, to the knowledge of Holdings, its Subsidiaries, and each of their ERISA Affiliates, nothing has occurred which would prevent, or cause the loss of, such qualification. No material liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Employee Benefit Plan or any Trust established under Title IV of ERISA has been or is expected to be incurred by Holdings, any of its Subsidiaries or any of their ERISA Affiliates. No ERISA Event has occurred or is reasonably expected to occur. Except to the extent required under Section 4980B of the Internal Revenue Code or similar state laws, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates. As of the most recent valuation date for any Pension Plan, the amount of benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed $3,500,000. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of Holdings, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA, does not exceed $3,500,000. Holdings, each of its Subsidiaries and each of their ERISA Affiliates have complied with the requirements of Section 515 of ERISA with respect to each Multiemployer Plan and are not in material default (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan.
      4.20 Certain Fees . No broker’s or finder’s fee or commission will be payable with respect hereto or any of the transactions contemplated hereby, except those broker’s and finder’s fees otherwise disclosed to the Agents prior to the Closing Date.
      4.21 Solvency . Each Credit Party is and, upon the incurrence of any Obligation by such Credit Party on any date on which this representation and warranty is made, will be, Solvent.
      4.22 [Reserved]
      4.23 Subordination . The subordination provisions of any Permitted Seller Notes or other Subordinated Indebtedness are enforceable against the holders thereof, and the loans and other obligations thereunder are and will be within the definition of Subordinated Indebtedness or Subordinated Debt , or similar term, as applicable, included in such provisions.

68


 

      4.24 Compliance with Statutes, etc . Each of Holdings and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and the ownership of its property (including compliance with all applicable Environmental Laws with respect to any Real Estate Asset or governing its business and the requirements of any permits issued under such Environmental Laws with respect to any such Real Estate Asset or the operations of Holdings or any of its Subsidiaries), except such non-compliance that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
      4.25 Disclosure . No representation or warranty of any Credit Party contained in any Credit Document or in any other documents, certificates or written statements (excluding any projections, pro-forma financial information or estimates) furnished to Lenders by or on behalf of Holdings or any of its Subsidiaries for use in connection with the transactions contemplated hereby, when taken as a whole, together with the Public Disclosure (as modified or supplemented after the Closing Date by other information furnished to the Lenders or publicly disclosed, in each case prior to the occurrence of an Event of Default pursuant to Section 8.1(d)), contains any untrue statement of a material fact or omits to state a material fact (known to Holdings or Company, in the case of any document not furnished by either of them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Holdings or Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results by a material amount. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Holdings or Company (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein, in the Public Disclosure, or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby.
      4.26 U.S. Foreign Corrupt Practices Act and OFAC . No Credit Party or any Affiliate thereof (i) is a Sanctioned Person, (ii) has more than 10% of its assets in Sanctioned Entities or (iii) derives more than 10% of its operating income from investments in, or transactions with, Sanctioned Persons or Sanctioned Entities. The proceeds of any Loan will not be used and have not been used to (i) make any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, or (ii) fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Entity.
SECTION 5. AFFIRMATIVE COVENANTS
     Each Credit Party covenants and agrees that so long as any Commitment is in effect and until payment in full of all Obligations, each Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 5.
      5.1 Financial Statements and Other Reports . Holdings will deliver to Administrative Agent and Lenders:

69


 

          (a) [Reserved];
          (b) Quarterly Financial Statements . As soon as available, and in any event within forty-five (45) days after the end of each of the first three Fiscal Quarters of each Fiscal Year, the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income, stockholders’ equity and cash flows of Holdings and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, all in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto;
          (c) Annual Financial Statements . As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, (i) the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income, stockholders’ equity and cash flows of Holdings and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the Financial Plan for the Fiscal Year covered by such financial statements, in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto; and (ii) with respect such consolidated financial statements a report thereon of independent certified public accountants of recognized national standing selected by Holdings, and reasonably satisfactory to Administrative Agent (which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards) together with a written statement by such independent certified public accountants stating whether, in connection with their audit examination, any condition or event that constitutes a Default or an Event of Default under Section 8 hereof has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of their audit examination;
          (d) Compliance Certificate . Together with each delivery of financial statements of Holdings and its Subsidiaries pursuant to Sections 5.1(b) and 5.1(c), a duly executed and completed Compliance Certificate;
          (e) Statements of Reconciliation after Change in Accounting Principles . If, as a result of any change in accounting principles and policies from those used in the preparation of the Historical Financial Statements, the consolidated financial statements of Holdings and its Subsidiaries delivered pursuant to Section 5.1(b) or 5.1(c) will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then, together with the first delivery of such financial statements after such change, one or more statements of reconciliation for all such prior financial statements in form and substance satisfactory to Administrative Agent;

70


 

          (f) Notice of Default . Promptly upon any officer of Holdings or Company obtaining knowledge (i) of any condition or event that constitutes a Default or an Event of Default or that notice has been given to Holdings or Company with respect thereto; (ii) that any Person has given any notice to Holdings or any of its Subsidiaries or taken any other action with respect to any event or condition set forth in Section 8.1(b); or (iii) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, a certificate of its Authorized Officers specifying the nature and period of existence of such condition, event or change, or specifying the notice given and action taken by any such Person and the nature of such claimed Event of Default, Default, default, event or condition, and what action Holdings has taken, is taking and proposes to take with respect thereto;
          (g) Notice of Litigation . Promptly upon any officer of Holdings or Company obtaining knowledge of (i) the institution of, or non-frivolous threat of, any Adverse Proceeding not previously disclosed in writing by Company to Lenders, or (ii) any material development in any Adverse Proceeding that, in the case of either (i) or (ii) if adversely determined, could be reasonably expected to have a Material Adverse Effect, or seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby, written notice thereof together with such other information as may be reasonably available to Holdings or Company to enable Lenders and their counsel to evaluate such matters;
          (h) ERISA . (i) Promptly upon becoming aware of the occurrence any ERISA Event, a written notice specifying the nature thereof, what action Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (ii) with reasonable promptness, copies of (1) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; (2) the most recent actuarial valuation report for each Pension Plan; (3) all notices received by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (4) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request;
          (i) Financial Plan . As soon as practicable and in any event no later than ninety (90) days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year and the next three succeeding Fiscal Years (a “Financial Plan” ), including (i) a forecasted consolidated balance sheet and forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each such Fiscal Year, together with a schedule demonstrating compliance with the financial covenants required by Section 6.8 and an explanation of the assumptions on which such forecasts are based and (ii) forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each quarter of the current Fiscal Year, together with an explanation of the assumptions on which such forecasts are based;
          (j) Insurance Report . As soon as practicable and in any event by the last day of each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material insurance coverage maintained as of the date of such report by Holdings and its Subsidiaries

71


 

and all material insurance coverage planned to be maintained by Holdings and its Subsidiaries in the immediately succeeding Fiscal Year;
          (k) Notice of Change in Board of Directors . With reasonable promptness, written notice of any change in the board of directors (or similar governing body) of Holdings or Company;
          (l) Notice Regarding Material Contracts . Promptly, and in any event within ten (10) Business Days (i) after any Material Contract of Holdings or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Holdings or such Subsidiary, as the case may be, or (ii) any new Material Contract is entered into, a written statement describing such event, with copies of such material amendments or new contracts, delivered to Administrative Agent (to the extent such delivery is permitted by the terms of any such Material Contract; provided , no such prohibition on delivery shall be effective if it were bargained for by Holdings or its applicable Subsidiary with the intent of avoiding compliance with this Section 5.1(l)), and an explanation of any actions being taken with respect thereto;
          (m) Environmental Reports and Audits . As soon as practicable following receipt thereof, copies of all environmental audits and reports with respect to environmental matters at any Facility or which relate to any environmental liabilities of Holdings or its Subsidiaries which, in any such case, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect;
          (n) Information Regarding Collateral . Company will furnish to the Collateral Agent prompt written notice of any change (i) in any Credit Party’s corporate name, (ii) in the location of any Credit Party’s chief executive office, its jurisdiction of organization, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral (other than real property and improvements and fixtures thereto) owned by it with a book value in excess of $250,000 is located (including the establishment of any such new office or facility), (iii) in any Credit Party’s identity or corporate structure or (iv) in any Credit Party’s Federal Taxpayer Identification Number. Company agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral and for the Collateral at all times following such change to have a valid, legal and perfected security interest as contemplated in the Collateral Documents. Company also agrees promptly to notify the Collateral Agent if any material portion of the Collateral is damaged or destroyed;
          (o) Annual Collateral Verifications . Each year, no later than thirty (30) days after the delivery of annual financial statements with respect to the preceding Fiscal Year pursuant to Section 5.1, Company shall deliver to the Collateral Agent an Officer’s Certificate (i) either confirming that there has been no change in such information since the date of the UCC Questionnaire delivered on the Closing Date or the date of the most recent certificate delivered pursuant to this Section and/or identifying such changes and (ii) certifying that all Uniform Commercial Code financing statements (including fixtures filings, as applicable) or other appropriate filings, recordings or registrations, have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above (or in such updated UCC Questionnaire) to the extent necessary to protect and perfect the security interests under the Collateral Documents for a

72


 

period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period); and
          (p) Other Information . (A) Promptly upon their becoming available, copies of (i) all financial statements, reports, notices and proxy statements sent or made available generally by Holdings to its security holders acting in such capacity or by any Subsidiary of Holdings to its security holders other than Holdings or another Subsidiary of Holdings, (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by Holdings or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, (iii) all press releases and other statements made available generally by Holdings or any of its Subsidiaries to the public concerning material developments in the business of Holdings or any of its Subsidiaries, and (B) such other information and data with respect to Holdings or any of its Subsidiaries as from time to time may be reasonably requested by Administrative Agent or any Lender.
      5.2 Existence . Except as otherwise permitted under Section 6.9, each Credit Party will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights and franchises, licenses and permits material to its business; provided , no Credit Party or any of its Subsidiaries shall be required to preserve any such existence, right or franchise, licenses and permits if such Person’s board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person, and that the loss thereof is not disadvantageous in any material respect to such Person or to Lenders.
      5.3 Payment of Taxes and Claims . Each Credit Party will, and will cause each of its Subsidiaries to, pay all Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided , no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (a) an adequate reserve or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefor, and (b) in the case of a charge or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such Tax or claim. No Credit Party will, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income Tax return with any Person (other than Holdings or any of its Subsidiaries).
      5.4 Maintenance of Properties . Each Credit Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or u