Document:

Exhibit 10.1

 

	
 
    	
Loan Number: 1013605
    
	

    	
EXECUTION COPY
    
	
 
    	
 
    
	
 
    	
 
    

 

CREDIT AGREEMENT

 

Dated as of April 2, 2015

 

by and among

	
 
    	
 
    	
 
    
	
 
    	
SUNSTONE HOTEL PARTNERSHIP, LLC,
    	
 
    
	
 
    	
 
    	
 
    	
as   Borrower,
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
SUNSTONE HOTEL INVESTORS, INC.,
    	
 
    
	
 
    	
 
    	
 
    	
as   Parent,
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
THE FINANCIAL INSTITUTIONS PARTY HERETO
    	
 
    
	
 
    	
AND THEIR ASSIGNEES UNDER SECTION 13.5.,
    	
 
    
	
 
    	
 
    	
 
    	
as   Lenders,
    	
 
    

 

and

 

	
 
    	
WELLS FARGO BANK, NATIONAL ASSOCIATION,
    	
 
    
	
 
    	
 
    	
 
    	
as   Administrative Agent
    	
 
    
					

 

 

WELLS FARGO SECURITIES, LLC,
 MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED

and

	
 
    	
J.P. MORGAN SECURITIES LLC,
    	
 
    
	
 
    	
 
    	
 
    	
as   Joint Lead Arrangers
    	
 
    
	
 
    	
 
    	
 
    	
and
    	
 
    
	
 
    	
 
    	
 
    	
Joint   Bookrunners,
    	
 
    

 

BANK OF AMERICA, N.A.

and

	
 
    	
JPMORGAN CHASE BANK, N.A.,
    	
 
    
	
 
    	
 
    	
 
    	
as   Syndication Agents,
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    

and

 

CITIBANK, N.A.,
 PNC BANK, NATIONAL ASSOCIATION,
 and

	
 
    	
U.S. BANK NATIONAL ASSOCIATION,
    	
 
    
	
 
    	
 
    	
 
    	
as   Documentation Agents
    	
 
    
					

 

	
 
    

 

 

TABLE OF CONTENTS

 

	
Article I. Definitions
    	
1
    
	
 
    	
 
    
	
Section 1.1. Definitions
    	
1
    
	
Section 1.2. General; References to Central Time
    	
30
    
	
Section 1.3. Financial Attributes of Non-Wholly Owned   Subsidiaries
    	
31
    
	
 
    	
 
    
	
Article II. Credit Facility
    	
31
    
	
 
    	
 
    
	
Section 2.1. Revolving Loans
    	
31
    
	
Section 2.2. Letters of Credit
    	
32
    
	
Section 2.3. Swingline Loans
    	
37
    
	
Section 2.4. Rates and Payment of Interest on Loans
    	
39
    
	
Section 2.5. Number of Interest Periods
    	
40
    
	
Section 2.6. Repayment of Loans
    	
41
    
	
Section 2.7. Prepayments
    	
41
    
	
Section 2.8. Continuation
    	
41
    
	
Section 2.9. Conversion
    	
42
    
	
Section 2.10. Notes
    	
42
    
	
Section 2.11. Voluntary Reductions of the Revolving   Commitment
    	
43
    
	
Section 2.12. Extension of Revolving Termination Date
    	
43
    
	
Section 2.13. Expiration Date of Letters of Credit   Past Revolving Commitment Termination
    	
44
    
	
Section 2.14. Amount Limitations
    	
44
    
	
Section 2.15. Increase in Revolving Commitments; Term   Loans
    	
44
    
	
Section 2.16. Funds Transfer Disbursements
    	
46
    
	
 
    	
 
    
	
Article III. Payments, Fees and Other General   Provisions
    	
46
    
	
 
    	
 
    
	
Section 3.1. Payments
    	
46
    
	
Section 3.2. Pro Rata Treatment
    	
47
    
	
Section 3.3. Sharing of Payments, Etc.
    	
47
    
	
Section 3.4. Several Obligations
    	
48
    
	
Section 3.5. Fees
    	
48
    
	
Section 3.6. Computations
    	
49
    
	
Section 3.7. Usury
    	
49
    
	
Section 3.8. Statements of Account
    	
50
    
	
Section 3.9. Defaulting Lenders
    	
50
    
	
Section 3.10. Taxes
    	
53
    
	
 
    	
 
    
	
Article IV. Unencumbered Properties
    	
57
    
	
 
    	
 
    
	
Section 4.1. Eligibility of Unencumbered Properties
    	
57
    
	
Section 4.2. Removal of Unencumbered Properties
    	
59
    
	
 
    	
 
    
	
Article V. Yield Protection, Etc.
    	
59
    
	
 
    	
 
    
	
Section 5.1. Additional Costs; Capital Adequacy
    	
59
    
	
Section 5.2. Suspension of LIBOR Loans
    	
61
    
	
Section 5.3. Illegality
    	
61
    
	
Section 5.4. Compensation
    	
62
    
	
Section 5.5. Treatment of Affected Loans
    	
62
    
	
Section 5.6. Affected Lenders
    	
63
    
	
Section 5.7. Change of Lending Office
    	
63
    
	
Section 5.8. Assumptions Concerning Funding of LIBOR   Loans
    	
63
    

 

i

 

	
Article VI. Conditions Precedent
    	
64
    
	
 
    	
 
    
	
Section 6.1. Initial Conditions Precedent
    	
64
    
	
Section 6.2. Conditions Precedent to All Loans and   Letters of Credit
    	
66
    
	
 
    	
 
    
	
Article VII. Representations and Warranties
    	
66
    
	
 
    	
 
    
	
Section 7.1. Representations and Warranties
    	
66
    
	
Section 7.2. Survival of Representations and   Warranties, Etc.
    	
73
    
	
 
    	
 
    
	
Article VIII. Affirmative Covenants
    	
73
    
	
 
    	
 
    
	
Section 8.1. Preservation of Existence and Similar   Matters
    	
73
    
	
Section 8.2. Compliance with Applicable Law
    	
73
    
	
Section 8.3. Maintenance of Property
    	
74
    
	
Section 8.4. Conduct of Business
    	
74
    
	
Section 8.5. Insurance
    	
74
    
	
Section 8.6. Payment of Taxes and Claims
    	
74
    
	
Section 8.7. Books and Records; Inspections
    	
74
    
	
Section 8.8. Environmental Matters
    	
75
    
	
Section 8.9. Further Assurances
    	
75
    
	
Section 8.10. Material Contracts
    	
75
    
	
Section 8.11. REIT Status
    	
76
    
	
Section 8.12. Exchange Listing
    	
76
    
	
Section 8.13. Guarantors
    	
76
    
	
 
    	
 
    
	
Article IX. Information
    	
77
    
	
 
    	
 
    
	
Section 9.1. Quarterly Financial Statements
    	
77
    
	
Section 9.2. Year-End Statements
    	
77
    
	
Section 9.3. Compliance Certificate
    	
77
    
	
Section 9.4. Other Information
    	
78
    
	
Section 9.5. Electronic Delivery of Certain   Information
    	
79
    
	
Section 9.6. Public/Private Information
    	
80
    
	
Section 9.7. USA Patriot Act Notice; Compliance
    	
80
    
	
Section 9.8. Use of Proceeds
    	
80
    
	
 
    	
 
    
	
Article X. Negative Covenants
    	
80
    
	
 
    	
 
    
	
Section 10.1. Financial Covenants
    	
80
    
	
Section 10.2. Permitted Liens; Negative Pledge
    	
82
    
	
Section 10.3. Restrictions on Intercompany Transfers
    	
83
    
	
Section 10.4. Restrictions on Use of Proceeds
    	
83
    
	
Section 10.5. Merger, Consolidation, Sales of Assets   and Other Arrangements
    	
83
    
	
Section 10.6. Plans
    	
85
    
	
Section 10.7. Fiscal Year
    	
85
    
	
Section 10.8. Modifications of Organizational   Documents
    	
85
    
	
Section 10.9. Transactions with Affiliates
    	
85
    
	
Section 10.10. Derivatives Contracts
    	
85
    
	
 
    	
 
    
	
Article XI. Default
    	
85
    
	
 
    	
 
    
	
Section 11.1. Events of Default
    	
85
    
	
Section 11.2. Remedies Upon Event of Default
    	
89
    
	
Section 11.3. Remedies Upon Default
    	
90
    
	
Section 11.4. Marshaling; Payments Set Aside
    	
90
    
	
Section 11.5. Allocation of Proceeds
    	
90
    

 

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Section 11.6. Letter of Credit Collateral Account
    	
91
    
	
Section 11.7. Performance by Administrative Agent
    	
92
    
	
Section 11.8. Rights Cumulative
    	
93
    
	
 
    	
 
    
	
Article XII. The Administrative Agent
    	
93
    
	
 
    	
 
    
	
Section 12.1. Appointment and Authorization
    	
93
    
	
Section 12.2. Administrative Agent as Lender
    	
94
    
	
Section 12.3. Approvals of Lenders
    	
95
    
	
Section 12.4. Notice of Events of Default
    	
95
    
	
Section 12.5. Administrative Agent’s Reliance
    	
95
    
	
Section 12.6. Indemnification of Administrative Agent
    	
96
    
	
Section 12.7. Lender Credit Decision, Etc.
    	
97
    
	
Section 12.8. Successor Administrative Agent
    	
97
    
	
Section 12.9. Titled Agents
    	
98
    
	
Section 12.10. Specified Derivatives Contracts
    	
98
    
	
 
    	
 
    
	
Article XIII. Miscellaneous
    	
99
    
	
 
    	
 
    
	
Section 13.1. Notices
    	
99
    
	
Section 13.2. Expenses
    	
101
    
	
Section 13.3. Setoff
    	
102
    
	
Section 13.4. Litigation; Jurisdiction; Other Matters;   Waivers
    	
102
    
	
Section 13.5. Successors and Assigns
    	
103
    
	
Section 13.6. Amendments and Waivers
    	
107
    
	
Section 13.7. Nonliability of Administrative Agent and   Lenders
    	
110
    
	
Section 13.8. Confidentiality
    	
110
    
	
Section 13.9. Indemnification
    	
111
    
	
Section 13.10. Termination; Survival
    	
112
    
	
Section 13.11. Severability of Provisions
    	
113
    
	
Section 13.12. GOVERNING LAW
    	
113
    
	
Section 13.13. Counterparts
    	
113
    
	
Section 13.14. Obligations with Respect to Loan   Parties and Subsidiaries
    	
113
    
	
Section 13.15. Independence of Covenants
    	
113
    
	
Section 13.16. Limitation of Liability
    	
113
    
	
Section 13.17. Entire Agreement
    	
114
    
	
Section 13.18. Construction
    	
114
    
	
Section 13.19. Headings
    	
114
    

 

	
SCHEDULE   I
    	
Commitments
    
	
SCHEDULE   1.1.(A)
    	
Existing   Letters of Credit
    
	
SCHEDULE   1.1.(B)
    	
List   of Loan Parties
    
	
SCHEDULE   4.1.
    	
Initial   Unencumbered Properties
    
	
SCHEDULE   7.1.(b)
    	
Ownership   Structure
    
	
SCHEDULE   7.1.(f)
    	
Properties
    
	
SCHEDULE   7.1.(g)
    	
Indebtedness   and Guaranties
    
	
SCHEDULE   7.1.(h)
    	
Material   Contracts
    
	
SCHEDULE   7.1.(i)
    	
Litigation
    
	
SCHEDULE   7.1.(r)
    	
Affiliate   Transactions
    

 

iii

 

	
EXHIBIT A
    	
Form of   Assignment and Assumption Agreement
    
	
EXHIBIT B
    	
Form of   Disbursement Instruction Agreement
    
	
EXHIBIT C
    	
Form of   Guaranty
    
	
EXHIBIT D
    	
Form of   Notice of Continuation
    
	
EXHIBIT E
    	
Form of   Notice of Conversion
    
	
EXHIBIT F
    	
Form of   Notice of Revolving Borrowing
    
	
EXHIBIT G
    	
Form of   Notice of Swingline Borrowing
    
	
EXHIBIT H
    	
Form of   Revolving Note
    
	
EXHIBIT I
    	
Form of   Swingline Note
    
	
EXHIBITS J
    	
Forms   of U.S. Tax Compliance Certificates
    
	
EXHIBIT K
    	
Form of   Compliance Certificate
    

 

iv

 

THIS CREDIT AGREEMENT (this “Agreement”) dated as of April 2, 2015, by and among SUNSTONE HOTEL PARTNERSHIP, LLC, a limited liability company formed under the laws of the State of Delaware (the “Borrower”), SUNSTONE HOTEL INVESTORS, INC., a corporation formed under the laws of the State of Maryland (the “Parent”), each of the financial institutions initially a signatory hereto together with their successors and assignees under Section 13.5. (the “Lenders”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent (the “Administrative Agent”), with each of WELLS FARGO SECURITIES, LLC, MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED and J.P. MORGAN SECURITIES LLC, as joint Lead Arrangers and joint Bookrunners (in such capacities, the “Lead Arrangers”), each of BANK OF AMERICA, N.A. and JPMORGAN CHASE BANK, N.A., as Syndication Agents (the “Syndication Agents”) and CITIBANK, N.A., PNC BANK, NATIONAL ASSOCIATION, and U.S. BANK NATIONAL ASSOCIATION, as Documentation Agents (the “Documentation Agents”).

 

WHEREAS, the Administrative Agent, the Issuing Banks, the Swingline Lender and the Lenders desire to make available to the Borrower a credit facility in the initial amount of $400,000,000, which will include a $400,000,000 revolving credit facility with a $40,000,000 swingline subfacility and a $30,000,000 letter of credit subfacility on the terms and conditions contained herein.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto agree as follows:

 

ARTICLE I. DEFINITIONS

 

Section 1.1.  Definitions.

 

In addition to terms defined elsewhere herein, the following terms shall have the following meanings for the purposes of this Agreement:

 

“Accession Agreement” means an Accession Agreement substantially in the form of Annex I to the Guaranty.

 

“Additional Costs” has the meaning given that term in Section 5.1.(b).

 

“Adjusted EBITDA” means, for any given period, (a) the EBITDA of the Parent and its Subsidiaries determined on a consolidated basis for such period, minus (b) FF&E Reserves for such period.

 

“Adjusted NOI” means, for any Property and for any period (or if no applicable period is stated, the period of twelve consecutive fiscal months then ended), Net Operating Income for such Property for such period minus an imputed franchise fee in the amount of four percent (4.0%) of the gross revenues for such Property for such period; provided, however, for purposes of this definition, no imputed franchise fee shall be deducted from Net Operating Income with respect to any Property that is not subject to a Franchise Agreement.

 

“Adjusted Total Asset Value” means Total Asset Value determined exclusive of assets that are owned by Excluded Subsidiaries, Foreign Subsidiaries or Unconsolidated Affiliates.

 

“Administrative Agent” means Wells Fargo Bank, National Association as contractual representative of the Lenders under this Agreement, or any successor Administrative Agent appointed pursuant to Section 12.8.

 

 

“Administrative Questionnaire” means the Administrative Questionnaire completed by each Lender and delivered to the Administrative Agent in a form supplied by the Administrative Agent to the Lenders from time to time.

 

“Affected Lender” has the meaning given that term in Section 5.6.

 

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

 

“Agreement” has the meaning set forth in the introductory paragraph hereof.

 

“Agreement Date” means the date as of which this Agreement is dated.

 

“Anti-Corruption Laws” means all laws, rules and regulations of any jurisdiction applicable to the Parent, the Borrower or any of their respective Subsidiaries from time to time concerning or relating to bribery or corruption.

 

“Applicable Law” means all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes, executive orders, and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

 

“Approved Fund” means any Fund that is administered, managed or underwritten by (a) a Lender, (b) an Affiliate of a Lender, or (c) an entity or an Affiliate of any entity that administers or manages a Lender.

 

“Assignment and Assumption” means an Assignment and Assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 13.5.), and accepted by the Administrative Agent, in substantially the form of Exhibit A or any other form approved by the Administrative Agent.

 

“Bankruptcy Code” means the Bankruptcy Code of 1978, as amended.

 

“Base Rate” means, at any time, the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBOR Market Index Rate plus 1.0%; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate, the Federal Funds Rate or the LIBOR Market Index Rate (provided that clause (c) shall not be applicable during any period in which LIBOR is unavailable or unascertainable).

 

“Base Rate Loan” means a Revolving Loan or Term Loan (or any portion thereof) bearing interest at a rate based on the Base Rate.

 

“Benefit Arrangement” means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by the Borrower, any other Loan Party or any other Subsidiary.

 

“Borrower” has the meaning set forth in the introductory paragraph hereof and shall include the Borrower’s successors and permitted assigns.

 

2

 

“Borrower Information” has the meaning given that term in Section 2.4.(c).

 

“Boston Park Plaza Hotel” means the Boston Park Plaza Hotel located in Boston, Massachusetts.

 

“Business Day” means (a) for all purposes other than as set forth in clause (b) below, any day (other than a Saturday, Sunday or legal holiday) on which banks in San Francisco, California and New York, New York, are open for the conduct of their commercial banking business, and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, any LIBOR Loan, or any Base Rate Loan as to which the interest rate is determined by reference to LIBOR, any day that is a Business Day described in clause (a) and that is also a day for trading by and between banks in Dollar deposits in the London interbank market.  Unless specifically referenced in this Agreement as a Business Day, all references to “days” shall be to calendar days.

 

“Capitalization Rate” means (a) 7.25% for (i) upscale select-service, upper-upscale or above full-service Properties developed with hotels and located within the central business districts of Boston, Massachusetts; Chicago, Illinois; Manhattan, New York City; Washington, D.C.; and San Francisco, California and (ii) the Wailea Beach Marriott or (b) 8.00% for all other Properties.

 

“Capitalized Lease Obligations” means obligations under a lease (or other arrangement conveying the right to use property) to pay rent or other amounts that are required to be capitalized for financial reporting purposes in accordance with GAAP.  The amount of a Capitalized Lease Obligation is the capitalized amount of such obligation as would be required to be reflected on a balance sheet of the applicable Person prepared in accordance with GAAP as of the applicable date.  The obligations of Sunstone St. Clair, LLC, a Delaware limited liability company and Subsidiary of the Borrower, under the Hyatt Chicago Capital Lease shall not constitute Capitalized Lease Obligations.

 

“Cash Collateralize” means, to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the applicable Issuing Bank or the Revolving Lenders, as collateral for Letter of Credit Liabilities or obligations of Revolving Lenders to fund participations in respect of Letter of Credit Liabilities, cash or deposit account balances or, if the Administrative Agent and the applicable Issuing Bank shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent and the applicable Issuing Bank.  “Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.

 

“Cash Equivalents” means: (a) securities issued, guaranteed or insured by the United States of America or any of its agencies with maturities of not more than one year from the date acquired; (b) certificates of deposit with maturities of not more than one year from the date acquired issued by a United States federal or state chartered commercial bank of recognized standing, or a commercial bank organized under the laws of any other country which is a member of the Organisation for Economic Cooperation and Development, or a political subdivision of any such country, acting through a branch or agency, which bank has capital and unimpaired surplus in excess of $500,000,000 and which bank or its holding company has a short-term commercial paper rating of at least A-2 or the equivalent by S&P or at least P-2 or the equivalent by Moody’s; (c) reverse repurchase agreements with terms of not more than seven days from the date acquired, for securities of the type described in clause (a) above and entered into only with commercial banks having the qualifications described in clause (b) above; (d) commercial paper issued by any Person incorporated under the laws of the United States of America or any State thereof and rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody’s, in each case with maturities of not more than one year from the date acquired; and (e) investments in money market funds registered under the Investment Company Act of 1940, as amended, which have net assets of at least $500,000,000 and at least 85% of whose assets consist of securities and other obligations of the type described in clauses (a) through (d) above.

 

3

 

“Class” means (a) when used with respect to a Commitment, refers to whether such Commitment is a Revolving Commitment or Term Loan Commitment, (b) when used with respect to a Loan, refers to whether such Loan is a Revolving Loan or a Term Loan and (c) when used with respect to a Lender, refers to whether such Lender has a Loan or Commitment with respect to a particular Class of Loans or Commitments.

 

“Commitment” means a Revolving Commitment or Term Loan Commitment, as the context may require.

 

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

 

“Compliance Certificate” has the meaning given that term in Section 9.3.

 

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

 

“Continue”, “Continuation” and “Continued” each refers to the continuation of a LIBOR Loan from one Interest Period to another Interest Period pursuant to Section 2.8.

 

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

 

“Convert”, “Conversion” and “Converted” each refers to the conversion of a Loan of one Type into a Loan of another Type pursuant to Section 2.9.

 

“Credit Event” means any of the following: (a) the making (or deemed making) of any Loan, (b) the Conversion of a Base Rate Loan into a LIBOR Loan, (c) the Continuation of a LIBOR Loan and (d) the issuance of a Letter of Credit or the amendment of a Letter of Credit that extends the maturity, or increases the Stated Amount, of such Letter of Credit.

 

“Credit Rating” means the rating assigned by a S&P or Moody’s to the senior unsecured long term Indebtedness of a Person.

 

“Debtor Relief Laws” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar Applicable Laws relating to the relief of debtors in the United States of America or other applicable jurisdictions from time to time in effect.

 

“Default” means any of the events specified in Section 11.1., whether or not there has been satisfied any requirement for the giving of notice, the lapse of time, or both.

 

“Defaulting Lender” means, subject to Section 3.9.(f), any Lender that (a) has failed to (i) fund all or any portion of its Loans within 2 Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each

 

4

 

of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, any Issuing Bank, the Swingline Lender or any other Lender any other amount required to be paid by it hereunder (including, with respect to a Revolving Lender, in respect of its participation in Letters of Credit or Swingline Loans) within 2 Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent, any Issuing Bank or the Swingline Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s good faith determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within 3 Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States of America or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender.  Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 3.9.(f)) upon delivery of written notice of such determination to the Borrower, the Issuing Banks, the Swingline Lender and each Lender.

 

“Derivatives Contract” means a “swap agreement” as defined in Section 101 of the Bankruptcy Code.

 

“Derivatives Termination Value” means, in respect of any one or more Derivatives Contracts, after taking into account the effect of any legally enforceable netting agreement or provision relating to such Derivatives Contracts, (a) for any date on or after the date such Derivatives Contracts have been terminated or closed out, the termination amount or value(s) determined in accordance therewith, and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Derivatives Contracts, as determined based upon one or more mid-market or other readily available quotations or estimates provided by any recognized dealer in Derivatives Contracts (which may include the Administrative Agent or any Lender).

 

“Development Property” means, as of any date of determination, any Property on which the existing building or other improvements are undergoing renovation and redevelopment that will either (a) disrupt the occupancy of at least 10% of the rentable rooms of such Property or (b) temporarily reduce the Net Operating Income of such Property by more than 10% as compared to the immediately preceding comparable prior period.  A Property that satisfies the foregoing requirements shall constitute a Development Property unless the Borrower in its discretion notifies the Administrative Agent in writing that such Property shall not constitute a Development Property.  Notwithstanding the foregoing in the case of the Boston Park Plaza Hotel or the Wailea Beach Marriott, during planned renovations of such Property, such Property shall not be treated as a Development Property if the Borrower has provided

 

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written notice to the Administrative Agent (a) that such renovations have commenced, (b) that the Borrower elects to have such Property not treated as a Development Property and (c) of the date on which such election is to become effective.  Upon the effective date of such an election, the Operating Property Value of such Property shall be deemed to be equal to the purchase price paid by the Borrower (or any applicable Subsidiary) for such Property less any amounts paid to the Borrower (or such Subsidiary) as a purchase price adjustment, held in escrow, retained as a contingency reserve, or in connection with other similar arrangements.  Such election shall cease to be effective upon the earlier of (i) the date six months following the date all improvements related to the renovation of such Property have been substantially completed and (ii) June 30, 2017.  Once such election shall cease to be effective, such Property shall be valued as a Seasoned Property.  A Property shall cease to be a Development Property once all improvements related to the renovation or redevelopment of such Property has been substantially completed.

 

“Disbursement Instruction Agreement” means an agreement substantially in the form of Exhibit B to be executed and delivered by the Borrower pursuant to Section 6.1.(a), as the same may be amended, restated or modified from time to time with the prior written approval of the Administrative Agent (such approval not to be unreasonably withheld, delayed or conditioned).

 

“Dollars” or “$” means the lawful currency of the United States of America.

 

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

 

“EBITDA” means, with respect to a Person for any period (without duplication):  (a) net income (loss) of such Person for such period determined on a consolidated basis exclusive of the following (but only to the extent included in determination of such net income (loss)):  (i) depreciation and amortization expense; (ii) Interest Expense; (iii) income tax expense; (iv) extraordinary or non-recurring gains, losses, revenues and expenses; and (v) other non-cash charges including, without limitation, impairment charges (other than non-cash charges that constitute an accrual of a reserve for future cash payments) plus (b) such Person’s Ownership Share of EBITDA of its Unconsolidated Affiliates.  EBITDA shall be adjusted to remove any impact from (x) non-cash amortization of stock grants to members of the Parent’s management, (y) straight line rent leveling adjustments required under GAAP and (z) amortization of intangibles pursuant to FASB ASC 805.  For purposes of determining compliance with the Leverage Ratio, (x) EBITDA attributable to Properties disposed of by the Borrower or any Subsidiary during the period of four consecutive fiscal quarters most recently ended for which financial statements are required to have been delivered pursuant to Section 9.1. or Section 9.2., or disposed of after such period but on or before the applicable date of determination, shall be excluded and (y) EBITDA attributable to any Property acquired by the Borrower or any Subsidiary during the period of four consecutive fiscal quarters most recently ended for which financial statements are required to have been delivered pursuant to Section 9.1. or Section 9.2., or acquired after such period but on or before the applicable date of determination, shall be utilized regardless of the date such Property was acquired by the Borrower or such Subsidiary.

 

“Effective Date” means the later of (a) the Agreement Date and (b) the date on which all of the conditions precedent set forth in Section 6.1. shall have been fulfilled or waived by all of the Lenders.

 

“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 13.5.(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 13.5.(b)(iii)).

 

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“Eligible Property” means a Property which satisfies all of the following requirements as confirmed by the Administrative Agent: (a) such Property is fully developed as (i) an upscale, upper-upscale or luxury (as defined by Smith Travel Research) full-service hotel with not less than 150 keys or (ii) a select-service (as defined by Smith Travel Research) hotel located in a top-25 market (or major resort market, approved by the Administrative Agent in writing (for any Property to be added after the Agreement Date, such approval not to be unreasonably withheld, conditioned or delayed)); (b) such Property is located in a top 50 MSA or, subject to the written approval of the Administrative Agent (for any Property to be added after the Agreement Date, such approval not to be unreasonably withheld, conditioned or delayed), a destination resort; (c) such Property is free of all structural defects, architectural deficiencies, title defects, environmental conditions or other adverse matters except for defects, deficiencies, conditions or other matters which, individually or collectively, are not material to the profitable operation of such Property; (d) such Property is owned in fee simple, or leased under a Ground Lease, entirely by the Borrower or a Subsidiary that is a Guarantor; (e) such Property is located in one of the 48 contiguous states of the United States of America or in Hawaii or the District of Columbia; (f) all material occupancy and operating permits and customary licenses required under Applicable Law for such Property are in effect and such Property is covered by insurance in amounts and upon terms that satisfy the criteria set forth in Section 10.2.; (g) neither such Property, nor if such Property is owned by a Subsidiary, any of the Borrower’s direct or indirect ownership interest in such Subsidiary, is subject to (i) any Lien other than Permitted Liens (but not Permitted Liens described in clause (g) of the definition of that term) or (ii) any Negative Pledge other than a Negative Pledge described in Section 10.2.(b)(i) or (ii); (h) regardless of whether such Property is owned by the Borrower or a Subsidiary, the Borrower has the right directly, or indirectly through a Subsidiary, to take the following actions without the need to obtain the consent of any Person: (i) to create Liens on such Property as security for Indebtedness of the Borrower or such Subsidiary, as applicable, and (ii) to sell, transfer or otherwise dispose of such Property; (i) such Property is currently open for business to the public; (j) such Property is (i) branded by a nationally recognized hotel company (such as Marriott, Hilton, Hyatt, Fairmont, Intercontinental or Starwood) or an Affiliate of such a company or (ii) operated as an independent hotel in a central business district or in Hawaii or, subject to the written approval of the Administrative Agent (for any Property to be added after the Agreement Date, such approval not to be unreasonably withheld, conditioned or delayed), another location; and (k) the Administrative Agent has received information and reports regarding such Property as required under Section 4.1.(b).

 

“Environmental Claims” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, accusations, allegations, notices of noncompliance or violation, investigations (other than internal reports prepared by any Person in the ordinary course of business and not in response to any third party action or request of any kind) or proceedings relating in any way to any actual or alleged violation of or liability under any Environmental Law or relating to any permit issued, or any approval given, under any such Environmental Law, including, without limitation, any and all claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages, contribution, indemnification cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to human health or the environment.

 

“Environmental Laws” means any Applicable Law relating to environmental protection or the manufacture, storage, remediation, disposal or clean-up of Hazardous Materials including, without limitation, the following: Clean Air Act, 42 U.S.C. § 7401 et seq.; Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; National Environmental Policy Act, 42 U.S.C. § 4321 et seq.; regulations of the Environmental Protection Agency, any applicable rule of common law and any judicial interpretation thereof relating primarily to the environment or Hazardous Materials, and any analogous or comparable state or local laws, regulations or ordinances that concern Hazardous Materials or protection of the environment.

 

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“Equity Interest” means, with respect to any Person, any share of capital stock of (or other ownership or profit interests in) such Person, any warrant, option or other right for the purchase or other acquisition from such Person of any share of capital stock of (or other ownership or profit interests in) such Person, whether or not certificated, any security convertible into or exchangeable for any share of capital stock of (or other ownership or profit interests in) such Person or warrant, right or option for the purchase or other acquisition from such Person of such shares (or such other interests), and any other ownership or profit interest in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such share, warrant, option, right or other interest is authorized or otherwise existing on any date of determination.

 

“Equity Issuance” means any issuance by a Person of any Equity Interest in such Person and shall in any event include the issuance of any Equity Interest upon the conversion or exchange of any security constituting Indebtedness that is convertible or exchangeable, or is being converted or exchanged, for Equity Interests.

 

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

 

“ERISA Event” means, with respect to the ERISA Group, (a) any “reportable event” as defined in Section 4043 of ERISA with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the withdrawal of a member of the ERISA Group from a Plan subject to Section 4063 of ERISA during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) the incurrence by a member of the ERISA Group of any liability with respect to the withdrawal or partial withdrawal from any Multiemployer Plan; (d) the incurrence by any member of the ERISA Group of any liability under Title IV of ERISA with respect to the termination of any Plan or Multiemployer Plan; (e) the institution of proceedings to terminate a Plan or Multiemployer Plan by the PBGC; (f) the failure by any member of the ERISA Group to make when due required contributions to a Multiemployer Plan or Plan unless such failure is cured within 30 days or the filing pursuant to Section 412(c) of the Internal Revenue Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard; (g) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan or the imposition of liability under Section 4069 or 4212(c) of ERISA; (h) the receipt by any member of the ERISA Group of any notice from a Multiemployer Plan imposing, or concerning information that could reasonably be expected to result in the imposition of, Withdrawal Liability on such ERISA Group member or informing such ERISA Group member that the Multiemployer Plan is insolvent (within the meaning of Section 4245 of ERISA), in reorganization (within the meaning of Section 4241 of ERISA), or in “critical” status (within the meaning of Section 432 of the Internal Revenue Code or Section 305 of ERISA); (i)  the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any member of the ERISA Group or the imposition of any Lien in favor of the PBGC under Title IV of ERISA; or (j) a determination that a Plan is, or is reasonably expected to be, in “at risk” status (within the meaning of Section 430 of the Internal Revenue Code or Section 303 of ERISA).

 

“ERISA Group” means the Parent, the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control, which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code.

 

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“Event of Default” means any of the events specified in Section 11.1., provided that any requirement for notice or lapse of time or any other condition has been satisfied.

 

“Excluded Subsidiary” means any Subsidiary as to which both of the following apply (a) such Subsidiary holds title to, or beneficially owns, assets which are or are intended to become collateral for any Secured Indebtedness of such Subsidiary, or is a direct or indirect beneficial owner of a Subsidiary holding title to or beneficially owning such assets (but having no material assets other than such beneficial ownership interests); and (b) which (i) is, or is expected to be, prohibited from Guarantying the Indebtedness of any other Person pursuant to any document, instrument or agreement evidencing such Secured Indebtedness or (ii) is prohibited from Guarantying the Indebtedness of any other Person pursuant a provision of such Subsidiary’s organizational documents which provision was included in such Subsidiary’s organizational documents as a condition to the extension of such Secured Indebtedness.

 

“Excluded Swap Obligation” means, with respect to any Loan Party, any Swap Obligation if, and to the extent that, all or a portion of the liability of such Loan Party for or the Guarantee of such Loan Party of, or the grant by such Loan Party of a Lien to secure, such Swap Obligation (or any liability or guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Loan Party’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the liability for or the Guarantee of such Loan Party or the grant of such Lien becomes effective with respect to such Swap Obligation (such determination being made after giving effect to any applicable keepwell, support or other agreement for the benefit of the applicable Loan Party, including under Section 31 of the Guaranty).  If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or Lien is or becomes illegal for the reasons identified in the immediately preceding sentence of this definition.

 

“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to an Applicable Law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 5.6.) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 3.10., amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 3.10.(g) and (d) any U.S. federal withholding Taxes imposed under FATCA.

 

“Existing Credit Agreement” means that certain Credit Agreement dated as of November 1, 2010, by and among the Borrower, the Parent, each lender from time to time party thereto and Bank of America, N.A., as administrative agent and L/C issuer, as amended in its entirety by that certain Second Amendment to Credit Agreement and Second Amendment to Pledge Agreement dated as of September 5, 2012.

 

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“Existing Letters of Credit” means each of the letters of credit identified on Schedule 1.1.(A).

 

“Extended Letter of Credit” has the meaning given that term in Section 2.2.(b).

 

“Fair Market Value” means, (a) with respect to a security listed on a national securities exchange or the NASDAQ National Market, the price of such security as reported on such exchange or market by any widely recognized reporting method customarily relied upon by financial institutions and (b) with respect to any other property, the price which could be negotiated in an arm’s-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction.  Except as otherwise provided herein, Fair Market Value shall be determined by the Board of Directors of the Borrower (or an authorized committee thereof) acting in good faith conclusively evidenced by a board resolution thereof delivered to the Administrative Agent or, with respect to any asset valued at no more than $5,000,000, such determination may be made by the chief financial officer of the Borrower evidenced by an officer’s certificate delivered to the Administrative Agent.

 

“FASB ASC” means the Accounting Standards Codification of the Financial Accounting Standards Board.

 

“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code and any intergovernmental agreements entered into by the United States of America that implement or modify the foregoing (together with the portions of any law implementing such intergovernmental agreements).

 

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent.

 

“Fee Letter” means that certain fee letter dated as of February 26, 2015, by and among the Borrower, the Lead Arrangers, Wells Fargo and the other parties thereto.

 

“Fees” means the fees and commissions provided for or referred to in Section 3.5. and any other fees payable by the Borrower hereunder, under the Fee Letter or under any other Loan Document.

 

“FF&E Reserves” means, for any period and with respect to a Property, an amount equal to the greater of (a) 4.0% of total gross revenues for such Property for such period and (b) the aggregate amount of reserves in respect to furniture, fixtures and equipment required under any Property Management Agreement or Franchise Agreement applicable to such Property for such period.  If the term FF&E Reserves is used without reference to a specific Property, then the amount shall be determined on an aggregate basis with respect to all Properties of the Parent and its Subsidiaries and the applicable Ownership Share of all Properties of all Unconsolidated Affiliates of the Parent.

 

“Fixed Charges” means, for any period, the sum of the following (without duplication): (a) Interest Expense of the Parent and its Subsidiaries determined on a consolidated basis for such period, (b) all regularly scheduled principal payments made with respect to Indebtedness of the Parent and its

 

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Subsidiaries during such period, other than any balloon, bullet or similar principal payment due upon the stated maturity of such Indebtedness, (c) all Preferred Dividends paid during such period on Preferred Equity Interests not owned by the Parent or any of its Subsidiaries and (d) payments in respect of Capitalized Lease Obligations.  The Parent’s Ownership Share of the Fixed Charges of Unconsolidated Affiliates of the Parent shall be included in determinations of Fixed Charges.

 

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

 

“Foreign Subsidiary” means a Subsidiary that is not a Domestic Subsidiary.

 

“Franchise Agreement” means an agreement permitting the use of the applicable hotel brand name, hotel system trademarks, trade names and any related rights in connection with the ownership or operation of a Property.

 

“Fronting Exposure” means, at any time there is a Defaulting Lender that is a Revolving Lender, (a) with respect to each Issuing Bank, such Defaulting Lender’s Revolving Commitment Percentage of the outstanding Letter of Credit Liabilities attributable to such Issuing Bank other than Letter of Credit Liabilities as to which such Defaulting Lender’s participation obligation has been reallocated to other Revolving Lenders or Cash Collateralized by such Defaulting Lender or by the Borrower in accordance with the terms hereof, and (b) with respect to the Swingline Lender, such Defaulting Lender’s Revolving Commitment Percentage of outstanding Swingline Loans other than Swingline Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Revolving Lenders.

 

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

 

“GAAP” means generally accepted accounting principles in the United States of America set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (including Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification”) or in such other statements by such other entity as may be approved by a significant segment of the accounting profession in the United States of America, which are applicable to the circumstances as of the date of determination.

 

“Governmental Approvals” means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities.

 

“Governmental Authority” means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, administrative, public or statutory instrumentality, authority, body, agency, bureau, commission, board, department or other comparable authority (including, without limitation, the Federal Deposit Insurance Corporation, the Comptroller of the Currency or the Federal Reserve Board, any central bank or any comparable authority) exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra national bodies such as the European Union or European Central Bank), or any arbitrator with authority to bind a party at law.

 

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“Ground Lease” means a ground lease containing terms and conditions customarily required by mortgagees making a loan secured by the interest of the holder of the leasehold estate demised pursuant to a ground lease, including without limitation, the following: (a) a remaining term (inclusive of any unexercised extension or renewal options that are exercisable without condition (other than a condition that no default exists under such ground lease at the time of exercise of such extension or renewal option)) of 50 years or more from the Agreement Date or, in the event that such remaining term is less than 50 years, such ground lease either (i) contains an unconditional end-of-term purchase option in favor of the lessee for consideration that is de minimus or (ii) provides that the lessee’s leasehold interest therein automatically becomes a fee-owned interest at the end of the term; (b) the right of the lessee to mortgage and encumber its interest in the leased property, and to amend the terms of any such mortgage or encumbrance, in each case, without the consent of the lessor or, if consent is required, such consent has been obtained or is required to be given upon the satisfaction of customary conditions reasonably acceptable to the Administrative Agent; (c) the obligation of the lessor to give the holder of any mortgage Lien on such leased property written notice of any defaults on the part of the lessee and agreement of such lessor that such lease will not be terminated until such holder has had a reasonable opportunity to cure or complete foreclosures, and fails to do so; (d) acceptable transferability of the lessee’s interest under such lease, including ability to sublease; (e) acceptable limitations on the use of the leased property; and (f) clearly determinable rental payment terms which in no event contain profit participation rights.  So long as the ground lease for the Hyatt Regency Newport Beach located in Newport Beach, California satisfies the requirements of the preceding clauses (b) through (f), such ground lease shall be deemed to be a Ground Lease.

 

“Guaranteed Obligations” means, collectively, (a) the Obligations and (b) all existing or future payment and other obligations owing by any Loan Party under any Specified Derivatives Contract (other than any Excluded Swap Obligation).

 

“Guarantor” means any Person that is a party to the Guaranty as a “Guarantor” and, in any event, shall include the Parent and each Material Subsidiary (other than Excluded Subsidiaries and Foreign Subsidiaries).

 

“Guaranty”, “Guaranteed”, “Guarantying” or to “Guarantee” as applied to any obligation means and includes:  (a) a guaranty (other than by endorsement of negotiable instruments for collection or deposit in the ordinary course of business), directly or indirectly, in any manner, of any part or all of such obligation, or (b) an agreement, direct or indirect, contingent or otherwise, and whether or not constituting a guaranty, the practical effect of which is to assure the payment or performance (or payment of damages in the event of nonperformance) of any part or all of such obligation whether by:  (i) the purchase of securities or obligations, (ii) the purchase, sale or lease (as lessee or lessor) of property or the purchase or sale of services primarily for the purpose of enabling the obligor with respect to such obligation to make any payment or performance (or payment of damages in the event of nonperformance) of or on account of any part or all of such obligation, or to assure the owner of such obligation against loss, (iii) the supplying of funds to or in any other manner investing in the obligor with respect to such obligation, (iv) repayment of amounts drawn down by beneficiaries of letters of credit (including Letters of Credit), or (v) the supplying of funds to or investing in a Person on account of all or any part of such Person’s obligation under a Guaranty of any obligation or indemnifying or holding harmless, in any way, such Person against any part or all of such obligation.  Obligations in respect of customary performance guaranties and Guaranties constituting Nonrecourse Indebtedness shall not be deemed to give rise to Indebtedness or otherwise constitute a Guaranty except as otherwise provided in the definition of “Nonrecourse Indebtedness”.  As the context requires, “Guaranty” shall also mean the guaranty executed and delivered pursuant to Section 6.1. or 8.13. and substantially in the form of Exhibit C.

 

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“Hazardous Materials” means all or any of the following: (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable Environmental Laws as “hazardous substances”, “hazardous materials”, “hazardous wastes”, “toxic substances” or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, “TCLP” toxicity, or “EP toxicity”; (b) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids or synthetic gas and drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (c) any flammable substances or explosives or any radioactive materials; (d) asbestos in any form; (e) toxic mold; and (f) electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty parts per million.

 

“Hyatt Chicago Capital Lease” means that certain Lease dated December 15, 1997 between Chicago Title Land Trust Company, as trustee, as successor trustee to LaSalle Bank National Association, as successor trustee to American National Bank and Trust Company of Chicago, and Sunstone St. Clair, LLC, a Delaware limited liability company, as assignee of Patriot Mortgage Borrower, L.L.C., as assignee of Oxford Wyn 633 Investment Company, L.L.C.

 

“Implied Debt Service” means (a) a given principal balance of Unsecured Indebtedness multiplied by (b) the greatest of (i) 10% per annum, (ii) the highest per annum interest rate then applicable to any of the outstanding principal balance of the Loans and (iii) a mortgage debt constant for a loan calculated using a per annum interest rate equal to the yield on a 10-year United States Treasury Note at such time plus 3.50% and amortizing in full in a 25-year period.

 

“Indebtedness” means, with respect to a Person, at the time of computation thereof, all of the following (without duplication):  (a) all obligations of such Person in respect of money borrowed or for the deferred purchase price of property or services (other than trade debt incurred in the ordinary course of business which is not more than 180 days past due); (b) all obligations of such Person, whether or not for money borrowed (i) represented by notes payable, or drafts accepted, in each case representing extensions of credit, (ii) evidenced by bonds, debentures, notes or similar instruments, or (iii) constituting purchase money indebtedness, conditional sales contracts, title retention debt instruments or other similar instruments, upon which interest charges are customarily paid or that are issued or assumed as full or partial payment for property or for services rendered; (c) Capitalized Lease Obligations of such Person; (d) all reimbursement obligations (contingent or otherwise) of such Person under or in respect of any letters of credit or acceptances (whether or not the same have been presented for payment); (e) all Off-Balance Sheet Obligations of such Person; (f) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Mandatorily Redeemable Stock issued by such Person or any other Person, valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (g) all obligations of such Person in respect of any (i) purchase obligation, repurchase obligation or takeout commitment, in each case evidenced by a binding agreement and to the extent such obligation is to acquire Equity Interests of another Person, assets of another Person that constitute the business or a division or operating unit of such Person, real estate, bonds, debentures, notes or similar instruments or (ii) forward equity commitment evidenced by a binding agreement (provided, however that this clause (g) shall exclude (x) any such obligation to the extent the obligation can be satisfied by the issuance of Equity Interests (other than Mandatorily Redeemable Stock) and (y) obligations incurred in the ordinary course of the business of the Borrower and its Subsidiaries to acquire developed Properties within 6 months of the incurrence of such obligations); (h) net obligations under any Derivatives Contract not entered into as a hedge against interest rate risk in respect of existing Indebtedness, in an amount equal to the Derivatives Termination Value thereof at such time (but in no event less than zero); (i) all Indebtedness of other Persons which such Person has Guaranteed or is otherwise recourse to such Person (except for Guaranties constituting Nonrecourse Indebtedness); and

 

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(j) all Indebtedness of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness or other payment obligation.  Indebtedness of any Person shall include Indebtedness of any partnership or joint venture in which such Person is a general partner or joint venturer to the extent of such Person’s Ownership Share of the ownership of such partnership or joint venture (except if such Indebtedness, or portion thereof, is recourse (other than in respect of exceptions referred to in the definition of Nonrecourse Indebtedness) to such Person, in which case the greater of such Person’s Ownership Share of such Indebtedness or the amount of such recourse portion of the Indebtedness, shall be included as Indebtedness of such Person).  All Loans and Letter of Credit Liabilities shall constitute Indebtedness of the Borrower.  The calculation of Indebtedness shall not include any fair value adjustments to the carrying value of liabilities to record such Indebtedness at fair value pursuant to electing the fair value option election under FASB ASC 825-10-25 (formerly known as FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities) or other FASB ASC standards allowing entities to elect fair value option for financial liabilities.

 

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

 

“Intellectual Property” has the meaning given that term in Section 7.1.(s).

 

“Interest Expense” means, with respect to a Person and for any period, and without duplication (a) all paid, accrued or capitalized interest expense (including, without limitation, capitalized interest expense (other than (x) capitalized interest funded from a construction loan interest reserve account held by another lender and not included in the calculation of cash for balance sheet reporting purposes) and (y) interest expense attributable to Capitalized Lease Obligations) of such Person and in any event shall include all letter of credit fees and all interest expense with respect to any Indebtedness in respect of which such Person is wholly or partially liable whether pursuant to any repayment, interest carry, performance guarantee or otherwise, plus (b) to the extent not already included in the foregoing clause (a), such Person’s Ownership Share of all paid, accrued or capitalized interest expense for such period of Unconsolidated Affiliates of such Person.  The term “Interest Expense” shall exclude all costs and expenses, including any prepayment penalties, of defeasing, or otherwise paying or prepaying, any Indebtedness encumbering any Property or amortization of deferred financing fees or the write-off of any deferred financing fees following the acquisition, disposition or refinancing thereof.

 

“Interest Period” means with respect to each LIBOR Loan, each period commencing on the date such LIBOR Loan is made, or in the case of the Continuation of a LIBOR Loan the last day of the preceding Interest Period for such Loan, and ending on the numerically corresponding day in the first, third or sixth calendar month thereafter, as the Borrower may select in a Notice of Revolving Borrowing, any notice of a borrowing for a Term Loan provided in accordance with the terms of any Term Loan Supplement, Notice of Continuation or Notice of Conversion, as the case may be, except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month.  Notwithstanding the foregoing: (i) if any Interest Period for a Class of Loans would otherwise end after the Termination Date for such Class, such Interest Period shall end on such Termination Date; and (ii) each Interest Period that would otherwise end on a day which is not a Business Day shall end on the immediately following Business Day (or, if such immediately following Business Day falls in the next calendar month, on the immediately preceding Business Day).

 

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“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.

 

“Investment” means, with respect to any Person, any acquisition or investment (whether or not of a controlling interest) by such Person, by means of any of the following:  (a) the purchase or other acquisition of any Equity Interest in another Person, (b) a loan, advance or extension of credit to, capital contribution to, Guaranty of Indebtedness of, or purchase or other acquisition of any Indebtedness of, another Person, including any partnership or joint venture interest in such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute the business or a division or operating unit of another Person.  Any commitment to make an Investment in any other Person, as well as any option of another Person to require an Investment in such Person, shall constitute an Investment.  Except as expressly provided otherwise, for purposes of determining compliance with any covenant contained in a Loan Document, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

 

“Issuing Bank” means each of Wells Fargo, Bank of America, N.A., and JPMorgan Chase Bank, N.A., in its capacity as an issuer of Letters of Credit pursuant to Section 2.2.

 

“L/C Commitment Amount” has the meaning given to that term in Section 2.2.(a).

 

“L/C Disbursement” has the meaning given to that term in Section 3.9.(b).

 

“Lender” means each financial institution from time to time party hereto as a “Lender” together with its respective successors and permitted assigns, and, as the context requires, includes the Swingline Lender; provided, however, that except as otherwise expressly provided herein, the term “Lender” shall exclude any Lender (or its Affiliates) in its capacity as a Specified Derivatives Provider.

 

“Lender Parties” means, collectively, the Administrative Agent, the Lenders, the Issuing Banks, the Specified Derivatives Providers, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 12.5., any other holder from time to time of any of any Obligations and, in each case, their respective successors and permitted assigns.

 

“Lending Office” means, for each Lender and for each Type of Loan, the office of such Lender specified in such Lender’s Administrative Questionnaire or in the applicable Assignment and Assumption, or such other office of such Lender as such Lender may notify the Administrative Agent in writing from time to time.

 

“Letter of Credit” has the meaning given that term in Section 2.2.(a).

 

“Letter of Credit Collateral Account” means a special deposit account maintained by the Administrative Agent, for the benefit of the Administrative Agent, the Issuing Banks and the Revolving Lenders, and under the sole dominion and control of the Administrative Agent.

 

“Letter of Credit Documents” means, with respect to any Letter of Credit, collectively, any application therefor, any certificate or other document presented in connection with a drawing under such Letter of Credit and any other agreement, instrument or other document governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations.

 

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“Letter of Credit Liabilities” means, without duplication, at any time and in respect of any Letter of Credit (a) the Stated Amount of such Letter of Credit plus (b) the aggregate unpaid principal amount of all Reimbursement Obligations of the Borrower at such time due and payable in respect of all drawings made under such Letter of Credit.  For purposes of this Agreement, a Revolving Lender (other than a Lender in its capacity as an Issuing Bank of a Letter of Credit) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest under Section 2.2. in such Letter of Credit, and the Lender that is the Issuing Bank of such Letter of Credit shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in such Letter of Credit after giving effect to the acquisition by the Revolving Lenders (other than the Lender then acting as the Issuing Bank of such Letter of Credit) of their participation interests under such Section.

 

“Level” has the meaning given that term in the definition of the term “Revolving Applicable Margin” and “Term Loan Applicable Margin”.

 

“Leverage Ratio” means, as of a given date, the ratio of (a)(i) Total Indebtedness as of such date minus (ii) the amount, if any, by which Unrestricted Cash exceeds $25,000,000 on such date, to (b) EBITDA of the Parent for the period of four consecutive fiscal quarters most recently ended for which financial statements are required to have been delivered pursuant to Section 9.1.or Section 9.2.

 

“LIBOR” means, with respect to any LIBOR Loan for any Interest Period, the rate of interest obtained by dividing (i) the rate of interest per annum determined on the basis of the rate for deposits in Dollars for a period equal to the applicable Interest Period which appears on Reuters Screen LIBOR01 Page (or any applicable successor page) at approximately 11:00 a.m. (London time) two Business Days prior to the first day of the applicable Interest Period by (ii) a percentage equal to 1 minus the stated maximum rate (stated as a decimal) of all reserves, if any, required to be maintained with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”) as specified in Regulation D of the Board of Governors of the Federal Reserve System (or against any other category of liabilities which includes deposits by reference to which the interest rate on LIBOR Loans is determined or any applicable category of extensions of credit or other assets which includes loans by an office of any Lender outside of the United States of America).  If, for any reason, the rate referred to in the preceding clause (i) does not appear on Reuters Screen LIBOR01 Page (or any applicable successor page), then the rate to be used for such clause (i) shall be determined by the Administrative Agent to be the arithmetic average of the rate per annum at which deposits in Dollars would be offered by first class banks in the London interbank market to the Administrative Agent at approximately 11:00 a.m. (London time) two Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period.  Any change in the maximum rate or reserves described in the preceding clause (ii) shall result in a change in LIBOR on the date on which such change in such maximum rate becomes effective.  If LIBOR determined as provided above would be less than zero, LIBOR shall be deemed to be zero.

 

“LIBOR Loan” means a Revolving Loan or Term Loan (or portion thereof) (other than a Base Rate Loan) bearing interest at a rate based on LIBOR.

 

“LIBOR Market Index Rate” means, for any day, LIBOR as of that day that would be applicable for a LIBOR Loan having a one-month Interest Period determined at approximately 10:00 a.m. Central time for such day (rather than 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period as otherwise provided in the definition of “LIBOR”), or if such day is not a Business Day, the immediately preceding Business Day.  The LIBOR Market Index Rate shall be determined on a daily basis.

 

“Lien” as applied to the property of any Person means:  (a) any security interest, encumbrance, mortgage, deed to secure debt, deed of trust, assignment of leases and rents, pledge, lien, hypothecation,

 

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assignment, charge or lease constituting a Capitalized Lease Obligation, conditional sale or other title retention agreement, or other security title or encumbrance of any kind in respect of any property of such Person, or upon the income, rents or profits therefrom; (b) any arrangement, express or implied, under which any property of such Person is transferred, sequestered or otherwise identified for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to the payment of the general, unsecured creditors of such Person; (c) the filing of any financing statement under the UCC or its equivalent in any jurisdiction, other than any precautionary filing not otherwise constituting or giving rise to a Lien, including a financing statement filed (i) in respect of a lease not constituting a Capitalized Lease Obligation pursuant to Section 9-505 (or a successor provision) of the UCC or its equivalent as in effect in an applicable jurisdiction or (ii) in connection with a sale or other disposition of accounts or other assets not prohibited by this Agreement in a transaction not otherwise constituting or giving rise to a Lien; and (d) any agreement by such Person to grant, give or otherwise convey any of the foregoing.

 

“Loan” means a Revolving Loan, Term Loan or a Swingline Loan, as the context may require.

 

“Loan Document” means this Agreement, each Note, the Guaranty, each Letter of Credit Document, the Fee Letter, each Term Loan Supplement and each other document or instrument now or hereafter executed and delivered by a Loan Party in connection with, pursuant to or relating to this Agreement (other than any Specified Derivatives Contract).

 

“Loan Party” means the Borrower, the Parent and each other Guarantor.  Schedule 1.1.(B) sets forth the Loan Parties in addition to the Borrower and the Parent as of the Agreement Date.

 

“Mandatorily Redeemable Stock” means, with respect to any Person, any Equity Interest of such Person which by the terms of such Equity Interest (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise, (a) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than an Equity Interest to the extent redeemable in exchange for common stock or other equivalent common Equity Interests at the option of the issuer of such Equity Interest), (b) is convertible into or exchangeable or exercisable for Indebtedness or Mandatorily Redeemable Stock, or (c) is redeemable at the option of the holder thereof, in whole or in part (other than an Equity Interest which is redeemable solely in exchange for common stock or other equivalent common Equity Interests), in the case of each of clauses (a) through (c), on or prior to the latest Termination Date for any Class of Loans.

 

“Marketable Securities” means: (a) common or preferred Equity Interests of Persons located in, and formed under the laws of, any State of the United States or America or the District of Columbia, which Equity Interests are subject to price quotations (quoted at least daily) on The NASDAQ Stock Market’s National Market System or have trading privileges on the New York Stock Exchange, the American Stock Exchange or another recognized national United States securities exchange and (b) securities evidencing Indebtedness issued by Persons located in, and formed under the laws of, any State of the United States or America or the District of Columbia, which Persons have a Credit Rating of BBB- or Baa3 or better.

 

“Material Adverse Effect” means a materially adverse effect on (a) the business, assets, liabilities, financial condition or results of operations of the Parent and its Subsidiaries, or the Borrower and its Subsidiaries, in each case, taken as a whole, (b) the ability of the Borrower or any other Loan Party to perform its obligations under any Loan Document to which it is a party, (c) the validity or enforceability of any of the Loan Documents, or (d) the material rights and remedies of the Lenders, the Issuing Banks and the Administrative Agent under any of the Loan Documents.

 

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“Material Contract” means any contract or other arrangement (other than Loan Documents and Specified Derivatives Contracts), whether written or oral, to which the Parent, the Borrower, or any other Subsidiary is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect.

 

“Material Subsidiary” means any Subsidiary (a) that owns in fee simple, or leases pursuant to a Ground Lease, an Unencumbered Property or (b) to which more than 5% of Total Asset Value is attributable on an individual basis.

 

“Moody’s” means Moody’s Investors Service, Inc. and its successors.

 

“Mortgage” means a mortgage, deed of trust, deed to secure debt or similar security instrument made by a Person owning an interest in real property granting a Lien on such interest in real property as security for the payment of Indebtedness of such Person or another Person.

 

“Mortgage Receivable” means a promissory note secured by a Mortgage of which the Parent, the Borrower or another Subsidiary is the holder and retains the rights of collection of all payments thereunder.

 

“MSA” means a Metropolitan Statistical Area as listed in Budget Bulletin No. 09-01 issued by the Executive Office of the President of the United States of America, Office of Management and Budget.

 

“Multiemployer Plan” means at any time a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding six plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such six-year period.

 

“Negative Pledge” means, with respect to a given asset, any provision of a document, instrument or agreement (other than any Loan Document) which prohibits or purports to prohibit the creation or assumption of any Lien on such asset as security for Indebtedness of the Person owning such asset or any other Person; provided, however, that an agreement that conditions a Person’s ability to encumber its assets upon the maintenance of one or more specified ratios that limit such Person’s ability to encumber its assets but that do not generally prohibit the encumbrance of its assets, or the encumbrance of specific assets, shall not constitute a Negative Pledge.

 

“Net Operating Income” or “NOI” means, for any Property and for a given period, the sum of the following (without duplication and determined on a consistent basis with prior periods):  (a) gross revenues received in the ordinary course from such Property minus (b) all expenses paid (excluding interest but including an appropriate accrual for property taxes and insurance) related to the ownership, operation or maintenance of such Property, including but not limited to property taxes, assessments and the like, insurance, utilities, payroll costs, maintenance, repair and landscaping expenses, marketing expenses, and general and administrative expenses (including an appropriate allocation for legal, accounting, advertising, marketing and other expenses incurred in connection with such Property, but specifically excluding general overhead expenses of the Borrower or any Subsidiary and any property management fees) minus (c) the FF&E Reserves for such Property as of the end of such period minus (d) an imputed management fee in the amount of three percent (3.0%) of the gross revenues for such Property for such period.  For purposes of determining Adjusted NOI, Operating Property Value, Total Asset Value and Unencumbered Asset Value, (x) NOI from Properties disposed of by the Borrower or any Subsidiary during the period of four consecutive fiscal quarters most recently ended for which financial statements are required to have been delivered pursuant to Section 9.1.or Section 9.2.  shall be excluded and (y) NOI for the period of four consecutive fiscal quarters most recently ended for which financial statements are required to have been delivered pursuant to Section 9.1.or Section 9.2. for any Property acquired by the Borrower or any Subsidiary during such period shall be utilized regardless of the date such Property was acquired by the Borrower or such Subsidiary.

 

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“Net Proceeds” means with respect to an Equity Issuance by a Person, the aggregate amount of all cash and the Fair Market Value of all other property (other than securities of such Person being converted or exchanged in connection with such Equity Issuance) received by such Person in respect of such Equity Issuance net of investment banking fees, legal fees, accountants’ fees, underwriting discounts and commissions and other customary fees and expenses actually incurred by such Person in connection with such Equity Issuance.

 

“New Property” means each Property on which a hotel is located acquired by the Parent, the Borrower, any Subsidiary or Unconsolidated Affiliate from the date of acquisition until the Seasoned Date in respect thereof; provided, however, that, upon the Seasoned Date for any New Property, such New Property shall be converted to a Seasoned Property and shall cease to be a New Property.

 

“Non-Consenting Lender” means any Lender that does not approve any amendment, waiver or consent that (a) requires the approval of all or all affected Lenders in accordance with the terms of Section 13.6. and (b) has been approved by the Requisite Lenders (or in the case of any amendment, waiver or consent that requires the approval of only the Requisite Class Lenders of a Class of Lenders, such amendment, waiver or consent has been approved by such Requisite Class Lenders).

 

“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.

 

“Nonrecourse Indebtedness” means, with respect to a Person, (a) Indebtedness for borrowed money in respect of which recourse for payment (except for customary exceptions for fraud, misapplication of funds, environmental indemnities, voluntary bankruptcy, collusive involuntary bankruptcy and other similar exceptions to nonrecourse liability) is contractually limited to specific assets of such Person encumbered by a Lien securing such Indebtedness or (b) if such Person is a Single Asset Entity, any Indebtedness for borrowed money of such Person.

 

“Note” means a Revolving Note, a Term Note or a Swingline Note, as the context may require.

 

“Notice of Additional Unencumbered Property” has the meaning given that term in Section 4.1.(b).

 

“Notice of Continuation” means a notice substantially in the form of Exhibit D (or such other form reasonably acceptable to the Administrative Agent and containing the information required in such Exhibit) to be delivered to the Administrative Agent pursuant to Section 2.8. evidencing the Borrower’s request for the Continuation of a LIBOR Loan.

 

“Notice of Conversion” means a notice substantially in the form of Exhibit E (or such other form reasonably acceptable to the Administrative Agent and containing the information required in such Exhibit) to be delivered to the Administrative Agent pursuant to Section 2.9. evidencing the Borrower’s request for the Conversion of a Loan from one Type to another Type.

 

“Notice of Revolving Borrowing” means a notice substantially in the form of Exhibit F (or such other form reasonably acceptable to the Administrative Agent and containing the information required in such Exhibit) to be delivered to the Administrative Agent pursuant to Section 2.1.(b) evidencing the Borrower’s request for a borrowing of Revolving Loans.

 

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“Notice of Swingline Borrowing” means a notice substantially in the form of Exhibit G (or such other form reasonably acceptable to the Administrative Agent and containing the information required in such Exhibit) to be delivered to the Swingline Lender pursuant to Section 2.3.(b) evidencing the Borrower’s request for a Swingline Loan.

 

“Obligations” means, individually and collectively:  (a) the aggregate principal balance of, and all accrued and unpaid interest on, all Loans; (b) all Reimbursement Obligations and all other Letter of Credit Liabilities; and (c) all other indebtedness, liabilities, obligations, covenants and duties of the Borrower and the other Loan Parties owing to the Administrative Agent, any Issuing Bank or any Lender of every kind, nature and description, under or in respect of this Agreement or any of the other Loan Documents, including, without limitation, the Fees and indemnification obligations, whether direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any promissory note.  For the avoidance of doubt, “Obligations” shall not include any indebtedness, liabilities, obligations, covenants or duties in respect of Specified Derivatives Contracts.

 

“Off-Balance Sheet Obligations” means, in the case of the Parent, the Borrower or any of their respective Subsidiaries, liabilities and obligations of the Parent, the Borrower, any such Subsidiary or any other Person in respect of “off-balance sheet arrangements” (as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act) which the Parent would be required to disclose in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Parent’s report on Form 10-Q or Form 10-K (or their equivalents) which the Parent is required to file with the SEC.

 

“OFAC” has the meaning given that term in Section 7.1.(x).

 

“Operating Property Value” means, at any date of determination, (a) for each New Property (until the Seasoned Date), or Development Property (that is not a Seasoned Property), the purchase price of the Property less any amounts paid to the Borrower (or such Subsidiary) as a purchase price adjustment, held in escrow, retained as a contingency reserve, or in connection with other similar arrangements; or (b) for each Seasoned Property, (A) the Adjusted NOI of such Property for the period of four consecutive fiscal quarters most recently ended for which financial statements are required to have been delivered pursuant to Section 9.1. or Section 9.2. divided by (B) the applicable Capitalization Rate.  Notwithstanding the forgoing, the Operating Property Value of the Wailea Beach Marriott and the Boston Park Plaza Hotel may be determined in accordance with the applicable provisions of the definition of “Development Property”.

 

“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

 

“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 5.6.).

 

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“Ownership Share” means, with respect to any Subsidiary of a Person (other than a Wholly Owned Subsidiary) or any Unconsolidated Affiliate of a Person, the greater of (a) such Person’s relative nominal direct and indirect ownership interest (expressed as a percentage) in such Subsidiary or Unconsolidated Affiliate or (b) such Person’s relative direct and indirect economic interest (calculated as a percentage) in such Subsidiary or Unconsolidated Affiliate determined in accordance with the applicable provisions of the declaration of trust, articles or certificate of incorporation, articles of organization, partnership agreement, joint venture agreement or other applicable organizational document of such Subsidiary or Unconsolidated Affiliate.

 

“Parent” has the meaning set forth in the introductory paragraph hereof and shall include the Parent’s successors and permitted assigns.

 

“Participant” has the meaning given that term in Section 13.5.(d).

 

“Participant Register” has the meaning given that term in Section 13.5.(d).

 

“Patriot Act” means The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. No. 107-56 (signed into law October 26, 2001)), as amended from time to time, and any successor statute.

 

“PBGC” means the Pension Benefit Guaranty Corporation and any successor agency.

 

“Permitted Liens” means, with respect to any asset or property of a Person, (a) Liens securing taxes, assessments and other charges or levies imposed by any Governmental Authority (excluding any Lien imposed pursuant to any of the provisions of ERISA or pursuant to any Environmental Laws) which, in each case, are not at the time required to be paid or discharged under Section 8.6., (b) the claims of materialmen, mechanics, carriers, warehousemen or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, which, in each case, are not at the time required to be paid or discharged under Section 8.6.; (c) Liens consisting of deposits or pledges made, in the ordinary course of business, in connection with, or to secure payment of, obligations under workers’ compensation, unemployment insurance or similar Applicable Laws; (d) Liens consisting of encumbrances in the nature of zoning restrictions, easements, and rights or restrictions of record on the use of real property, which do not materially detract from the value of such property or impair the intended use thereof in the business of such Person; (e) the rights of tenants under leases or subleases not interfering with the ordinary conduct of business of such Person; and (f) Liens in favor of the Administrative Agent for its benefit and the benefit of the other Lender Parties; and (g) Liens in existence on the Agreement Date and set forth on Schedule 7.1.(g).

 

“Person” means any natural person, corporation, limited partnership, general partnership, joint stock company, limited liability company, limited liability partnership, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, or any other nongovernmental entity, or any Governmental Authority.

 

“Plan” means at any time an employee pension benefit plan within the meaning of Section 3(2) of ERISA (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (a) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (b) has at any time within the preceding six years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group.

 

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“Post-Default Rate” means, in respect of any principal of any Class of Loans, the rate otherwise applicable to such Class of Loans plus an additional two percent (2.0%) per annum and with respect to any other Obligation, a rate per annum equal to the Base Rate as in effect from time to time plus the Revolving Applicable Margin for Base Rate Loans that are Revolving Loans plus two percent (2.0%).

 

“Preferred Dividends” means, for any period and without duplication, all Restricted Payments paid during such period on Preferred Equity Interests issued by the Parent or a Subsidiary.  Preferred Dividends shall not include dividends or distributions (a) paid or payable solely in Equity Interests (other than Mandatorily Redeemable Stock) payable to holders of such class of Equity Interests, (b) paid or payable to the Parent or a Subsidiary, or (c) constituting or resulting in the redemption of Preferred Equity Interests, other than scheduled redemptions not constituting balloon, bullet or similar redemptions in full.

 

“Preferred Equity Interests” means, with respect to any Person, Equity Interests in such Person which are entitled to preference or priority over any other Equity Interest in such Person in respect of the payment of dividends or distribution of assets upon liquidation or both.

 

“Prime Rate” means, at any time, the rate of interest per annum publicly announced from time to time by the Lender then acting as the Administrative Agent as its prime rate.  Each change in the Prime Rate shall be effective as of the opening of business on the day such change in such prime rate occurs.  The parties hereto acknowledge that the rate announced publicly by the Lender acting as Administrative Agent as its prime rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks.

 

“Principal Office” means the office of the Administrative Agent located at 608 Second Avenue S., 11th Floor, Minneapolis, Minnesota 55402-1916, or any other subsequent office that the Administrative Agent shall have specified as the Principal Office by written notice to the Borrower and the Lenders.

 

“Pro Rata Share” means, as to each Lender, the ratio, expressed as a percentage of (a)(i) the aggregate amount of such Lender’s Commitments plus (ii) the aggregate amount of such Lender’s outstanding Term Loans (if any) to (b)(i) the aggregate amount of the Commitments of all Lenders plus (ii) the aggregate principal amount of all outstanding Term Loans (if any); provided, however, that if at the time of determination the Revolving Commitments have been terminated or reduced to zero, the “Pro Rata Share” of each Lender shall be the ratio, expressed as a percentage of (A) the sum of the aggregate principal amount of all outstanding Revolving Loans, Term Loans (if any), Swingline Loans and Letter of Credit Liabilities owing to such Lender as of such date to (B) the sum of the aggregate principal amount of all outstanding Revolving Loans, Term Loans (if any), Swingline Loans and Letter of Credit Liabilities.  If at the time of determination the Revolving Commitments have been terminated or reduced to zero and there are no outstanding Loans or Letter of Credit Liabilities, then the Pro Rata Shares of the Lenders shall be determined as of the most recent date on which Revolving Commitments were in effect or Loans or Letters of Credit Liabilities were outstanding.  For purposes of this definition, a Revolving Lender shall be deemed to hold a Swingline Loan or a Letter of Credit Liability to the extent such Revolving Lender has acquired a participation therein under the terms of this Agreement and has not failed to perform its obligations in respect of such participation.

 

“Property” means any parcel (or group of related parcels) of real property owned or leased (in whole or in part) or operated by the Parent, the Borrower, any other Subsidiary or any Unconsolidated Affiliate of the Parent.

 

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“Property Management Agreement” means, collectively, all agreements entered into by a Loan Party pursuant to which such Loan Party engages a Person to advise it with respect to the management of an Unencumbered Property or to provide management services with respect to the same.

 

“Qualified Plan” means a Benefit Arrangement that is intended to be tax-qualified under Section 401(a) of the Internal Revenue Code.

 

“Recipient” means (a) the Administrative Agent, (b) any Lender and (c) any Issuing Bank, as applicable.

 

“Register” has the meaning given that term in Section 13.5.(c).

 

“Regulatory Change” means, with respect to any Lender, any change effective after the Agreement Date in Applicable Law (including without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks, including such Lender, of or under any Applicable Law (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any Governmental Authority or monetary authority charged with the interpretation or administration thereof or compliance by any Lender with any request or directive regarding capital adequacy or liquidity.  Notwithstanding anything herein to the contrary, (a) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (b) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Regulatory Change”, regardless of the date enacted, adopted or issued.

 

“Reimbursement Obligation” means the absolute, unconditional and irrevocable obligation of the Borrower to reimburse the applicable Issuing Bank for any drawing honored by such Issuing Bank under a Letter of Credit.

 

“REIT” means a Person qualifying for treatment as a “real estate investment trust” under the Internal Revenue Code.

 

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, shareholders, directors, officers, employees, agents, counsel, other advisors and representatives of such Person and of such Person’s Affiliates.

 

“Requisite Class Lenders” means, with respect to a Class of Lenders as of any date of determination, Lenders of such Class (a) having more than 50% of the aggregate amount of the Commitments of such Class, or (b) if the Commitments of such Class have been terminated or reduced to zero, holding more than 50% of the principal amount of the aggregate outstanding Loans of such Class, and in the case of Revolving Lenders, outstanding Letter of Credit Liabilities and Swingline Loans; provided that (i) in determining such percentage at any given time, all then existing Defaulting Lenders of such Class will be disregarded and excluded, and (ii) at all times when two or more Lenders (excluding Defaulting Lenders) of such Class are party to this Agreement, the term “Requisite Class Lenders” shall in no event mean less than two Lenders of such Class.  For purposes of this definition, a Revolving Lender shall be deemed to hold a Swingline Loan or a Letter of Credit Liability to the extent such Lender has acquired a participation therein under the terms of this Agreement and has not failed to perform its obligations in respect of such participation.

 

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“Requisite Lenders” means, as of any date, (a) Lenders having more than 50% of the aggregate amount of the Commitments and the outstanding Term Loans (if any) of all Lenders, or (b) if the Commitments have been terminated or reduced to zero, Lenders holding more than 50% of the principal amount of the aggregate outstanding Loans and Letter of Credit Liabilities; provided that (i) in determining such percentage at any given time, all then existing Defaulting Lenders will be disregarded and excluded, and (ii) at all times when two or more Lenders (excluding Defaulting Lenders) are party to this Agreement, the term “Requisite Lenders” shall in no event mean less than two Lenders.  For purposes of this definition, a Revolving Lender shall be deemed to hold a Swingline Loan or a Letter of Credit Liability to the extent such Lender has acquired a participation therein under the terms of this Agreement and has not failed to perform its obligations in respect of such participation.

 

“Responsible Officer” means with respect to the Borrower or any Subsidiary, the chief executive officer, the chief financial officer, the treasurer and any senior vice president of the Borrower or such Subsidiary.

 

“Restricted Payment” means (a) any dividend or other distribution, direct or indirect, on account of any Equity Interest of the Parent, the Borrower or any Subsidiary now or hereafter outstanding, except a dividend payable solely in Equity Interests; (b) any redemption, conversion, exchange, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Equity Interest of the Parent, the Borrower or any Subsidiary now or hereafter outstanding; and (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire any Equity Interests of the Parent, the Borrower or any Subsidiary now or hereafter outstanding.

 

“Revolving Applicable Margin” means, with respect to a particular Type of Revolving Loans, the percentage rate set forth below corresponding to the Leverage Ratio as determined in accordance with Section 10.1.(a):

 

	
Level
    	
 
    	
Leverage Ratio
    	
 
    	
Revolving
   Applicable
   Margin for
   Revolving Loans
   that are LIBOR
   Loans
    	
 
    	
Revolving
   Applicable
   Margin for
   Revolving Loans
   that are
   Base Rate Loans
    	
 
    
	
1
    	
 
    	
Less than 4.00 to 1.00
    	
 
    	
1.55
    	
%
    	
0.55
    	
%
    
	
2
    	
 
    	
Greater than or equal to 4.00 to 1.00 but less than 4.50 to 1.00
    	
 
    	
1.60
    	
%
    	
0.60
    	
%
    
	
3
    	
 
    	
Greater than or equal to 4.50 to 1.00 but less than 5.00 to 1.00
    	
 
    	
1.65
    	
%
    	
0.65
    	
%
    
	
4
    	
 
    	
Greater than or equal to 5.00 to 1.00 but less than 6.00 to 1.00
    	
 
    	
1.95
    	
%
    	
0.95
    	
%
    
	
5
    	
 
    	
Greater than or equal to 6.00 to 1.00
    	
 
    	
2.30
    	
%
    	
1.30
    	
%
    

 

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The Revolving Applicable Margins for Revolving Loans shall be determined by the Administrative Agent from time to time, based on the Leverage Ratio as set forth in the Compliance Certificate most recently delivered by the Borrower pursuant to Section 9.3. and will be subject to increase as provided in Section 10.1.(a). Any adjustment to the Revolving Applicable Margins shall be effective as of the first day of the calendar month immediately following the month during which the Borrower delivers to the Administrative Agent the applicable Compliance Certificate pursuant to Section 9.3.  If the Borrower fails to deliver a Compliance Certificate pursuant to Section 9.3., the Revolving Applicable Margins shall equal the percentages corresponding to Level 5 until the first day of the calendar month immediately following the month that the required Compliance Certificate is delivered.  Notwithstanding the foregoing, for the period from the Effective Date through but excluding the date on which the Administrative Agent first determines the Revolving Applicable Margin for Revolving Loans as set forth above, the Revolving Applicable Margin shall be determined based on Level 1.  Thereafter, such Revolving Applicable Margins shall be adjusted from time to time as set forth in this definition.  The provisions of this definition shall be subject to Section 2.4.(c).  During the Surge Period, any Revolving Applicable Margin determined as provided above shall be increased by 0.35%.

 

“Revolving Commitment” means, as to each Revolving Lender (other than the Swingline Lender), such Revolving Lender’s obligation to make Revolving Loans pursuant to Section 2.1., to issue (in the case of an Issuing Bank) and to participate (in the case of the other Revolving Lenders) in Letters of Credit pursuant to Section 2.2.(i), and to participate in Swingline Loans pursuant to Section 2.3.(e), in an amount up to, but not exceeding, the amount set forth for such Revolving Lender on Schedule I as such Revolving Lender’s “Revolving Commitment Amount” or as set forth in the applicable Assignment and Assumption or agreement executed by a Person becoming a Revolving Lender pursuant to Section 2.15., as the same may be reduced from time to time pursuant to Section 2.11. or increased or reduced as appropriate to reflect any assignments to or by such Revolving Lender effected in accordance with Section 13.5. or increased as appropriate to reflect any increase effected in accordance with Section 2.15.

 

“Revolving Commitment Percentage” means, as to each Lender with a Revolving Commitment, the ratio, expressed as a percentage, of (a) the amount of such Lender’s Revolving Commitment to (b) the aggregate amount of the Revolving Commitments of all Revolving Lenders; provided, however, that if at the time of determination the Revolving Commitments have been terminated or reduced to zero, the “Revolving Commitment Percentage” of each Lender with a Revolving Commitment shall be the “Revolving Commitment Percentage” of such Lender in effect immediately prior to such termination or reduction.

 

“Revolving Credit Exposure” means, as to any Revolving Lender at any time, the aggregate principal amount at such time of its outstanding Revolving Loans and such Revolving Lender’s participation in Letter of Credit Liabilities and Swingline Loans at such time.

 

“Revolving Lender” means a Lender having a Revolving Commitment, or if the Revolving Commitments have been terminated or reduced to zero, holding any Revolving Loans.

 

“Revolving Loan” means a loan made by a Revolving Lender to the Borrower pursuant to Section 2.1.(a).

 

“Revolving Note” means a promissory note of the Borrower substantially in the form of Exhibit H, payable to the order of a Revolving Lender in a principal amount equal to the amount of such Lender’s Revolving Commitment.

 

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“Revolving Termination Date” means April 2, 2019 or such later date to which the Revolving Termination Date may be extended pursuant to Section 2.12.

 

“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom, and in each case applicable to activities of the Parent, the Borrower or any of their respective Subsidiaries.

 

“Seasoned Date” means the first day on which an acquired Property on which a hotel is located has been owned for four (4) full fiscal quarters following the date of acquisition by the Parent, the Borrower, a Subsidiary or an Unconsolidated Affiliate.

 

“Seasoned Property” means Property on which a hotel is located that is not a New Property.

 

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

 

“Secured Indebtedness” means, with respect to a Person as of a given date, the aggregate principal amount of all Indebtedness of such Person outstanding on such date that is secured in any manner by any Lien on any property and, in the case of the Parent, shall include (without duplication) the Parent’s Ownership Share of the Secured Indebtedness of its Unconsolidated Affiliates.

 

“Secured Recourse Indebtedness” means all Indebtedness (including Guaranties of Secured Indebtedness) that is Secured Indebtedness and is not Nonrecourse Indebtedness.

 

“Securities Act” means the Securities Act of 1933, as amended from time to time, together with all rules and regulations issued thereunder.

 

“Significant Subsidiary” means any Subsidiary to which more than $10,000,000 of Total Asset Value is attributable.

 

“Single Asset Entity” means a Person (other than an individual) that (a) only owns a single Property; (b) is engaged only in the business of owning, developing and/or leasing such Property; and (c) receives substantially all of its gross revenues from such Property.  In addition, if the assets of a Person consist solely of (i) Equity Interests in one or more Single Asset Entities that directly or indirectly own such single Property and (ii) cash and other assets of nominal value incidental to such Person’s ownership of the other Single Asset Entity, such Person shall also be deemed to be a Single Asset Entity for purposes of this Agreement.

 

“Solvent” means, when used with respect to any Person (or group of Persons), that (a) the fair value and the fair salable value of its (or their) assets (excluding any Indebtedness due from any Affiliate of such Person (or group of Persons)) are each in excess of the fair valuation of its (or their) total liabilities (including all contingent liabilities computed at the amount which, in light of all facts and circumstances existing at such time, represents the amount that could reasonably be expected to become an actual and matured liability); (b) such Person is (or group of Persons are) able to pay its (or their) debts or other obligations in the ordinary course as they mature; and (c) such Person (or group of Persons) has capital not unreasonably small to carry on its (or their) business and all business in which it proposes (or they propose) to be engaged.

 

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“Specified Derivatives Contract” means any Derivatives Contract that is made or entered into at any time, or in effect at any time now or hereafter, whether as a result of an assignment or transfer or otherwise, between or among any Loan Party and any Specified Derivatives Provider, and which was not prohibited by any of the Loan Documents when made or entered into.

 

“Specified Derivatives Provider” means any Person that (a) at the time it enters into a Specified Derivatives Contract with a Loan Party, is a Lender or an Affiliate of a Lender or (b) at the time it (or its Affiliate) becomes a Lender (including on the Effective Date), is a party to a Specified Derivatives Contract with a Loan Party, in each case in its capacity as a party to such Specified Derivatives Contract.

 

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

 

“Stated Amount” means the amount available to be drawn by a beneficiary under a Letter of Credit from time to time, as such amount may be increased or reduced from time to time in accordance with the terms of such Letter of Credit.  Unless otherwise specified herein, the Stated Amount of a Letter of Credit at any time shall be deemed to be the Stated Amount of such Letter of Credit in effect at such time; provided, that with respect to any Letter of Credit that, by its terms or the terms of any Letter of Credit Document related thereto, provides for one or more automatic increases in the stated amount thereof, the Stated Amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

 

“Subsidiary” means, for any Person, any corporation, partnership, limited liability company or other entity of which at least a majority of the Equity Interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other individuals performing similar functions of such corporation, partnership, limited liability company or other entity (without regard to the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person, and shall include all Persons the accounts of which are consolidated with those of such Person pursuant to GAAP.

 

“Surge Period” has the meaning given that term in Section 10.1.(a).

 

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

 

“Swingline Commitment” means the Swingline Lender’s obligation to make Swingline Loans pursuant to Section 2.3. in an amount up to, but not exceeding the amount set forth in the first sentence of Section 2.3.(a), as such amount may be reduced from time to time in accordance with the terms hereof.

 

“Swingline Lender” means Wells Fargo, together with its successors and permitted assigns.

 

“Swingline Loan” means a loan made by the Swingline Lender to the Borrower pursuant to Section 2.3.

 

“Swingline Maturity Date” means the date which is 7 Business Days prior to the Revolving Termination Date.

 

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“Swingline Note” means the promissory note of the Borrower substantially in the form of Exhibit I, payable to the order of the Swingline Lender in a principal amount equal to the amount of the Swingline Commitment as originally in effect and otherwise duly completed.

 

“Tangible Net Worth” means, as of a given date, the stockholders’ equity of the Parent and its Subsidiaries determined on a consolidated basis plus accumulated depreciation and amortization, minus (to the extent included when determining such stockholders’ equity): (a) the amount of any write-up in the book value of any assets reflected in any balance sheet resulting from revaluation thereof or any write-up in excess of the cost of such assets acquired, and (b) the aggregate of all amounts appearing on the assets side of any such balance sheet for franchises, licenses, permits, patents, patent applications, copyrights, trademarks, service marks, trade names, goodwill, treasury stock, experimental or organizational expenses and other like assets which would be classified as intangible assets under GAAP, all determined on a consolidated basis.

 

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

 

“Term Loan” means a loan made by a Term Loan Lender to the Borrower pursuant to the terms of any applicable Term Loan Supplement.

 

“Term Loan Applicable Margin” has the meaning set forth in any applicable Term Loan Supplement.

 

“Term Loan Commitment” means, as to each Term Loan Lender, such Lender’s obligation to make Term Loans pursuant to any applicable Term Loan Supplement, in an amount up to, but not exceeding, the amount set forth for such Lender in such Term Loan Supplement as such Lender’s “Term Loan Commitment Amount”.  No Term Loan Commitment exists as of the Effective Date.

 

“Term Loan Lender” means a Lender having a Term Loan Commitment, or if the Term Loan Commitments have been terminated or reduced to zero, a Lender holding a Term Loan.

 

“Term Loan Maturity Date” means the date set forth in any Term Loan Supplement as the maturity date for the Term Loans made pursuant thereto or, as applicable, such later date to which the applicable Term Loan Maturity Date may be extended pursuant to the terms thereof.

 

“Term Loan Supplement” means each supplement to this Agreement setting forth the terms and conditions to any Term Loans made pursuant to Section 2.15.

 

“Term Note” means a promissory note of the Borrower payable to the order of a Term Loan Lender in a principal amount equal to the amount of such Term Loan Lender’s Term Loans.

 

“Termination Date” means (a) with respect to the Revolving Commitments and the Revolving Loans, the Revolving Termination Date and (b) with respect to any Term Loans, the applicable Term Loan Maturity Date.

 

“Titled Agent” has the meaning given that term in Section 12.9.

 

“Total Asset Value” means the sum of all of the following of the Parent, the Borrower and their respective Subsidiaries (without duplication) on a consolidated basis determined in accordance with GAAP applied on a consistent basis: (a) Unrestricted Cash and Marketable Securities, plus (b) the

 

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Operating Property Value of all Properties of the Parent, the Borrower and their respective Subsidiaries on which a hotel is located, plus (c) the book value of Unimproved Land, Mortgage Receivables and other promissory notes, plus (d) the Parent’s Ownership Share of the preceding items for its Unconsolidated Affiliates (excluding assets of the type described in the immediately preceding clause (a)), plus (e) in the case of any property subject to a purchase obligation, repurchase obligation or takeout commitment which at such time (x) could not be specifically enforced by the seller of such property, the aggregate amount of due diligence deposits, earnest money payments and other similar payments made under the applicable contract which, at such time, would be subject to forfeiture upon termination of the contract or (y) could be specifically enforced by the seller of such property, the contractual purchase price of such property, but, in either case, only to the extent the amount of the applicable purchase obligation, repurchase obligation or takeout commitment is included in the Indebtedness of the Borrower and its Subsidiaries on a consolidated basis.  Notwithstanding the foregoing, for purposes of determining Total Asset Value, the amount, if any, by which the value of Marketable Securities included under the immediately preceding clause (a) would account for more than 15% of Total Asset Value shall be excluded.  The percentage of Total Asset Value attributable to a given Subsidiary shall be equal to the ratio expressed as a percentage of (x) an amount equal to Total Asset Value calculated solely with respect to assets owned directly by such Subsidiary to (y) Total Asset Value.

 

“Total Indebtedness” means without duplication: (a) all Indebtedness of the Parent, the Borrower and all other Subsidiaries determined on a consolidated basis plus (b) the Parent’s Ownership Share of the Indebtedness of all Unconsolidated Affiliates of the Parent.

 

“Type” with respect to any Revolving Loan or Term Loan, refers to whether such Loan or portion thereof is a LIBOR Loan or a Base Rate Loan.

 

“UCC” means the Uniform Commercial Code as in effect in any applicable jurisdiction.

 

“Unconsolidated Affiliate” means, with respect to any Person, any other Person in whom such Person holds an Investment, which Investment is accounted for in the financial statements of such Person on an equity basis of accounting and whose financial results would not be consolidated under GAAP with the financial results of such Person on the consolidated financial statements of such Person.

 

“Unencumbered Asset Value” means at any time the sum of (x) the aggregate Operating Property Values of the Unencumbered Properties at such time and (y) the amount, if any, by which Unrestricted Cash exceeds $25,000,000.  For purposes of this definition, the Adjusted NOI for any Unencumbered Property shall be reduced by an amount equal to (a) the amount by which the Adjusted NOI of such Unencumbered Property would exceed 30% of the aggregate Adjusted NOI of all Unencumbered Properties and (b) the amount by which the Adjusted NOI of Unencumbered Properties located in the same MSA as such Property would exceed 40% of the aggregate Adjusted NOI of all Unencumbered Properties.  In addition (i) to the extent that Unencumbered Asset Value attributable to Properties leased under Ground Leases would exceed 25% of Unencumbered Asset Value, such excess shall be excluded and (ii) if the Wailea Beach Marriott or the Boston Park Plaza Hotel is an Unencumbered Property and the Borrower has elected that such Property not be treated as a Development Property in accordance with the applicable provisions of the definition of such term, then to the extent that the Unencumbered Asset Value attributable to such Property would exceed 25% of Unencumbered Asset Value, such excess shall be excluded.

 

“Unencumbered Property” means an Eligible Property that is included in the calculation of Unencumbered Asset Value pursuant to Section 4.1.  A Property shall cease to be an Unencumbered Property if at any time such Property shall cease to be an Eligible Property (unless such Property has been approved or been deemed to have been approved as an Unencumbered Property by the Requisite Lenders in accordance with Section 4.1.(c)).

 

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“Unimproved Land” means land on which no development (other than improvements that are not material and are temporary in nature) has occurred.  Unimproved Land shall not include any undeveloped parcels of a Property that has been developed unless and until the Borrower provides written notice to the Administrative Agent that the Borrower intends to develop such parcel.

 

“Unrestricted Cash” means cash and cash equivalents held by the Borrower and its Subsidiaries other than tenant deposits and other cash and cash equivalents that are subject to a Lien or a Negative Pledge or the disposition of which is restricted in any way.

 

“Unsecured Indebtedness” means with respect to a Person as of any given date, the aggregate principal amount of all Indebtedness of such Person outstanding at such date that is not Secured Indebtedness.

 

“U.S. Person” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Internal Revenue Code.

 

“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 3.10.(g)(ii)(B)(III).

 

“Wailea Beach Marriott” means the Wailea Beach Marriott Resort & Spa located in Maui, Hawaii.

 

“Wells Fargo” means Wells Fargo Bank, National Association, and its successors and permitted assigns.

 

“Wholly Owned Subsidiary” means any Subsidiary of a Person in respect of which all of the Equity Interests (other than, in the case of a corporation, directors’ qualifying shares) are at the time directly or indirectly owned or controlled by such Person or one or more other Subsidiaries of such Person or by such Person and one or more other Subsidiaries of such Person.

 

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

 

“Withholding Agent” means (a) the Borrower, (b) any other Loan Party and (c) the Administrative Agent, as applicable.

 

Section 1.2.  General; References to Central Time.

 

Unless otherwise indicated, all accounting terms, ratios and measurements shall be interpreted or determined in accordance with GAAP from time to time; provided that (i) if at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Requisite Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; and (ii) until so amended, (A) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (B) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to

 

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such change in GAAP.  Notwithstanding the preceding sentence, the calculation of liabilities shall not include any fair value adjustments to the carrying value of liabilities to record such liabilities at fair value pursuant to electing the fair value option election under FASB ASC 825-10-25 (formerly known as FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities) or other FASB standards allowing entities to elect fair value option for financial liabilities.  References in this Agreement to “Sections”, “Articles”, “Exhibits” and “Schedules” are to sections, articles, exhibits and schedules herein and hereto unless otherwise indicated.  References in this Agreement to any document, instrument or agreement (a) shall include all exhibits, schedules and other attachments thereto, (b) except as expressly provided otherwise in any Loan Document, shall include all documents, instruments or agreements issued or executed in replacement thereof, to the extent permitted hereby and (c) shall mean such document, instrument or agreement, or replacement or predecessor thereto, as amended, supplemented, restated or otherwise modified from time to time to the extent not otherwise stated herein or prohibited hereby and in effect at any given time.  Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter.  Unless explicitly set forth to the contrary, a reference to “Subsidiary” means a Subsidiary of the Parent or a Subsidiary of such Subsidiary and a reference to an “Affiliate” means an Affiliate of the Borrower.  Titles and captions of Articles, Sections, subsections and clauses in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement.  Unless otherwise indicated, all references to time are references to Central time daylight or standard, as applicable.

 

Section 1.3.  Financial Attributes of Non-Wholly Owned Subsidiaries.

 

When determining the Revolving Applicable Margin, any Term Loan Applicable Margin, and compliance by the Parent or the Borrower with any financial covenant contained in any of the Loan Documents (a) only the Ownership Share of the Parent of the financial attributes of a Subsidiary that is not a Wholly Owned Subsidiary shall be included and (b) the Parent’s Ownership Share of the Borrower shall be deemed to be 100.0%.

 

ARTICLE II. CREDIT FACILITY

 

Section 2.1.  Revolving Loans.

 

(a)                                 Making of Revolving Loans.  Subject to the terms and conditions set forth in this Agreement, including without limitation, Section 2.14., each Revolving Lender severally and not jointly agrees to make Revolving Loans to the Borrower during the period from and including the Effective Date to but excluding the Revolving Termination Date, in an aggregate principal amount at any one time outstanding up to, but not exceeding, such Revolving Lender’s Commitment.  Each borrowing of Revolving Loans that are to be (i) Base Rate Loans shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess thereof and (ii) LIBOR Loans shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess thereof.  Notwithstanding the immediately preceding two sentences but subject to Section 2.14., a borrowing of Revolving Loans may be in the aggregate amount of the unused Revolving Commitments.  Within the foregoing limits and subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow Revolving Loans.

 

(b)                                 Requests for Revolving Loans. Not later than 11:00 a.m. Central time at least 1 Business Day prior to a borrowing of Revolving Loans that are to be Base Rate Loans and not later than 11:00 a.m. Central time at least 3 Business Days prior to a borrowing of Revolving Loans that are to be LIBOR Loans, the Borrower shall deliver to the Administrative Agent a Notice of Revolving Borrowing.  Each Notice of Revolving Borrowing shall specify the aggregate principal amount of the Revolving Loans to

 

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be borrowed, the date such Revolving Loans are to be borrowed (which must be a Business Day), the Type of the requested Revolving Loans, and if such Revolving Loans are to be LIBOR Loans, the initial Interest Period for such Revolving Loans.  Each Notice of Revolving Borrowing shall be irrevocable once given and binding on the Borrower.  Prior to delivering a Notice of Revolving Borrowing, the Borrower may (without specifying whether a Revolving Loan will be a Base Rate Loan or a LIBOR Loan) request that the Administrative Agent provide the Borrower with the most recent LIBOR available to the Administrative Agent.  The Administrative Agent shall provide such quoted rate to the Borrower on the date of such request or as soon as possible thereafter.

 

(c)                                  Funding of Revolving Loans.  Promptly after receipt of a Notice of Revolving Borrowing under the immediately preceding subsection (b), the Administrative Agent shall notify each Revolving Lender of the proposed borrowing.  Each Revolving Lender shall deposit an amount equal to the Revolving Loan to be made by such Lender to the Borrower with the Administrative Agent at the Principal Office, in immediately available funds not later than 11:00 a.m. Central time on the date of such proposed Revolving Loans.  Subject to fulfillment of all applicable conditions set forth herein, the Administrative Agent shall make available to the Borrower in the account specified in the Disbursement Instruction Agreement, not later than 2:00 p.m. Central time on the date of the requested borrowing of Revolving Loans, the proceeds of such amounts received by the Administrative Agent.

 

(d)                                 Assumptions Regarding Funding by Revolving Lenders.  With respect to Revolving Loans to be made after the Effective Date, unless the Administrative Agent shall have been notified by any Revolving Lender that such Lender will not make available to the Administrative Agent a Revolving Loan to be made by such Lender in connection with any borrowing, the Administrative Agent may assume that such Lender will make the proceeds of such Revolving Loan available to the Administrative Agent in accordance with this Section, and the Administrative Agent may (but shall not be obligated to), in reliance upon such assumption, make available to the Borrower the amount of such Revolving Loan to be provided by such Lender.  In such event, if such Lender does not make available to the Administrative Agent the proceeds of such Revolving Loan, then such Lender and the Borrower severally agree to pay to the Administrative Agent on demand the amount of such Revolving Loan with interest thereon, for each day from and including the date such Revolving Loan is made available to the Borrower but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to such Revolving Loan.  If the Borrower and such Lender shall pay the amount of such interest to the Administrative Agent for the same or overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period.  If such Lender pays to the Administrative Agent the amount of such Revolving Loan, the amount so paid shall constitute such Lender’s Revolving Loan included in the borrowing.  Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Revolving Lender that shall have failed to make available the proceeds of a Revolving Loan to be made by such Lender.

 

Section 2.2.  Letters of Credit.

 

(a)                                 Letters of Credit.  Subject to the terms and conditions of this Agreement, including without limitation, Section 2.14., the Issuing Banks, on behalf of the Revolving Lenders, agree to issue for the account of the Borrower during the period from and including the Effective Date to, but excluding, the date 30 days prior to the Revolving Termination Date, one or more standby letters of credit (each a “Letter of Credit”) up to a maximum aggregate Stated Amount at any one time outstanding not to exceed $30,000,000, as such amount may be reduced from time to time in accordance with the terms hereof (the “L/C Commitment Amount”); provided, that an Issuing Bank shall not be obligated to issue any Letter of

 

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Credit if (x) after giving effect to such issuance, the aggregate Stated Amount of outstanding Letters of Credit issued by such Issuing Bank would exceed the lesser of (i) one-third of the L/C Commitment Amount and (ii) the Commitment of such Issuing Bank in its capacity as a Lender, (y) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing Bank from issuing the Letter of Credit, or any Applicable Law with respect to such Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or (z) such issuance would conflict with, or cause such Issuing Bank or any Revolving Lender to exceed any limits imposed by, any Applicable Law.  The parties hereto agree that each of the Existing Letters of Credit shall, from and after the Effective Date, be deemed to be a Letter of Credit issued under this Agreement.

 

(b)                                 Terms of Letters of Credit.  At the time of issuance, the amount, form, terms and conditions of each Letter of Credit, and of any drafts or acceptances thereunder, shall be subject to approval by the applicable Issuing Bank and the Borrower (such approvals not to be unreasonably withheld, conditioned or delayed).  Notwithstanding the foregoing, in no event may (i) the expiration date of any Letter of Credit extend beyond the date that is 30 days prior to the Revolving Termination Date, or (ii) any Letter of Credit have a duration in excess of one year; provided, however, a Letter of Credit may contain a provision providing for the automatic extension of the expiration date in the absence of a notice of non-renewal from the applicable Issuing Bank but in no event shall any such provision permit the extension of the current expiration date of such Letter of Credit beyond the earlier of (x) the date that is 30 days prior to the Revolving Termination Date and (y) the date one year after the current expiration date.  Notwithstanding the foregoing, a Letter of Credit may, as a result of its express terms or as the result of the effect of an automatic extension provision, have an expiration date of not more than one year beyond the Revolving Termination Date (any such Letter of Credit being referred to as an “Extended Letter of Credit”), so long as the Borrower delivers to the Administrative Agent for its benefit and the benefit of the applicable Issuing Bank and the Revolving Lenders no later than 30 days prior to the Revolving Termination Date, Cash Collateral for such Letter of Credit for deposit into the Letter of Credit Collateral Account in an amount equal to the Stated Amount of such Letter of Credit; provided, that the obligations of the Borrower under this Section 2.2. in respect of such Extended Letters of Credit shall survive the termination of this Agreement and shall remain in effect until no such Extended Letters of Credit remain outstanding.  If the Borrower fails to provide Cash Collateral with respect to any Extended Letter of Credit by the date 30 days prior to the Revolving Termination Date, such failure shall be treated as a drawing under such Extended Letter of Credit (in an amount equal to the maximum Stated Amount of such Extended Letter of Credit), which shall be reimbursed (or participations therein funded) by the Revolving Lenders in accordance with the immediately following subsections (i) and (j), with the proceeds being utilized to provide Cash Collateral for such Extended Letter of Credit.  The initial Stated Amount of each Letter of Credit shall be at least $50,000 (or such lesser amount as may be acceptable to the applicable Issuing Bank, the Administrative Agent and the Borrower).

 

(c)                                  Requests for Issuance of Letters of Credit.  The Borrower shall give the Issuing Bank selected by the Borrower to issue a Letter of Credit and the Administrative Agent written notice at least 5 Business Days prior to the requested date of issuance of such Letter of Credit, such notice to describe in reasonable detail the proposed terms of such Letter of Credit and the nature of the transactions or obligations proposed to be supported by such Letter of Credit, and in any event shall set forth with respect to such Letter of Credit the proposed (i) initial Stated Amount, (ii) beneficiary, and (iii) expiration date.  The Borrower shall also execute and deliver such customary applications and agreements for standby letters of credit, and other forms as requested from time to time by the applicable Issuing Bank.  Provided the Borrower has given the notice prescribed by the first sentence of this subsection and delivered such applications and agreements referred to in the preceding sentence, subject to the other terms and conditions of this Agreement, including the satisfaction of any applicable conditions precedent set forth in

 

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Section 6.2., the applicable Issuing Bank shall issue the requested Letter of Credit on the requested date of issuance for the benefit of the stipulated beneficiary but in no event prior to the date 5 Business Days (or such shorter period as agreed by the applicable Issuing Bank in its sole and absolute discretion) following the date after which the applicable Issuing Bank has received all of the items required to be delivered to it under this subsection.  References herein to “issue” and derivations thereof with respect to Letters of Credit shall also include extensions or modifications of any outstanding Letters of Credit, unless the context otherwise requires.  Upon the written request of the Borrower, an Issuing Bank shall deliver to the Borrower a copy of each Letter of Credit issued by such Issuing Bank within a reasonable time after the date of issuance thereof.  To the extent any term of a Letter of Credit Document (excluding any certificate or other document presented by a beneficiary in connection with a drawing under such Letter of Credit) is inconsistent with a term of any Loan Document, the term of such Loan Document shall control.  The Borrower shall examine the copy of any Letter of Credit or any amendment to a Letter of Credit that is delivered to it by the applicable Issuing Bank and, in the event of any claim of noncompliance with the Borrower’s instructions or other irregularity, the Borrower will promptly (but in any event, within 5 Business Days after the later of (x) receipt by the beneficiary of such Letter of Credit of the original of, or amendment to, such Letter of Credit, as applicable and (y) receipt by the Borrower of a copy of such Letter of Credit or amendment, as applicable) notify such Issuing Bank.  The Borrower shall be conclusively deemed to have waived any such claim against such Issuing Bank and its correspondents unless such notice is given as aforesaid.

 

(d)                                 Reimbursement Obligations.  Upon receipt by an Issuing Bank from the beneficiary of a Letter of Credit issued by such Issuing Bank of any demand for payment under such Letter of Credit and such Issuing Bank’s determination that such demand for payment complies with the requirements of such Letter of Credit, such Issuing Bank shall promptly notify the Borrower and the Administrative Agent of the amount to be paid by such Issuing Bank as a result of such demand and the date on which payment is to be made by such Issuing Bank to such beneficiary in respect of such demand; provided, however, that an Issuing Bank’s failure to give, or delay in giving, such notice shall not discharge the Borrower in any respect from the applicable Reimbursement Obligation.  The Borrower hereby absolutely, unconditionally and irrevocably agrees to pay and reimburse each applicable Issuing Bank for the amount of each demand for payment under such Letter of Credit at or prior to the date on which payment is to be made by such Issuing Bank to the beneficiary thereunder, without presentment, demand, protest or other formalities of any kind.  Upon receipt by an Issuing Bank of any payment in respect of any Reimbursement Obligation in respect of a Letter of Credit issued by such Issuing Bank, such Issuing Bank shall promptly pay to each Revolving Lender that has acquired a participation therein under the second sentence of the immediately following subsection (i) such Lender’s Revolving Commitment Percentage of such payment.

 

(e)                                  Manner of Reimbursement.  Upon its receipt of a notice referred to in the immediately preceding subsection (d), the Borrower shall advise the Administrative Agent and the applicable Issuing Bank whether or not the Borrower intends to borrow hereunder to finance its obligation to reimburse the applicable Issuing Bank for the amount of the related demand for payment and, if it does, the Borrower shall submit a timely request for such borrowing as provided in the applicable provisions of this Agreement.  If the Borrower fails to so advise the Administrative Agent and such Issuing Bank, or if the Borrower fails to reimburse the applicable Issuing Bank for a demand for payment under a Letter of Credit issued by such Issuing Bank by the date of such payment, the failure of which the applicable Issuing Bank shall promptly notify the Administrative Agent, then (i) if the applicable conditions contained in Article VI. would permit the making of Revolving Loans, the Borrower shall be deemed to have requested a borrowing of Revolving Loans (which shall be Base Rate Loans) in an amount equal to the unpaid Reimbursement Obligation and the Administrative Agent shall give each Revolving Lender prompt notice of the amount of the Revolving Loan to be made available to the Administrative Agent not later than 12:00 noon Central time and (ii) if such conditions would not permit the making of Revolving Loans, the provisions of subsection (j) of this Section shall apply.  The amount limitations set forth in the second sentence of Section 2.1.(a) shall not apply to any borrowing of Base Rate Loans under this subsection.

 

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(f)                                   Effect of Letters of Credit on Revolving Commitments.  Upon the issuance by an Issuing Bank of any Letter of Credit and until such Letter of Credit shall have expired or been cancelled, the Revolving Commitment of each Revolving Lender shall be deemed to be utilized for all purposes of this Agreement in an amount equal to the product of (i) such Lender’s Revolving Commitment Percentage and (ii) (A) the Stated Amount of such Letter of Credit plus (B) any related Reimbursement Obligations then outstanding.

 

(g)                                  Issuing Banks’ Duties Regarding Letters of Credit; Unconditional Nature of Reimbursement Obligations.  In examining documents presented in connection with drawings under Letters of Credit and making payments under such Letters of Credit against such documents, each Issuing Banks shall only be required to use the same standard of care as it uses in connection with examining documents presented in connection with drawings under letters of credit in which it has not sold participations and making payments under such letters of credit.  The Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit.  In furtherance and not in limitation of the foregoing, none of the Issuing Banks, Administrative Agent or any of the Lenders shall be responsible for, and the Borrower’s obligations in respect of Letters of Credit shall not be affected in any manner by, (i) the form, validity, sufficiency, accuracy, genuineness or legal effects of any document submitted by any party in connection with the application for and issuance of or any drawing honored under any Letter of Credit even if such document 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 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 Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telex, telecopy, electronic mail 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 Letter of Credit, or of the proceeds thereof; (vii) the misapplication by the beneficiary of any Letter of Credit, or of the proceeds of any drawing under any Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Issuing Banks, the Administrative Agent or the Lenders.  None of the above shall affect, impair or prevent the vesting of any of the Issuing Banks’ or Administrative Agent’s rights or powers hereunder.  Any action taken or omitted to be taken by an Issuing Bank under or in connection with any Letter of Credit issued by it, if taken or omitted in the absence of gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final, non-appealable judgment), shall not create against such Issuing Bank any liability to the Borrower, the Administrative Agent, any other Issuing Bank or any Lender.  In this connection, the obligation of the Borrower to reimburse the applicable Issuing Bank for any drawing made under any Letter of Credit issued by such Issuing Bank, and to repay any Revolving Loan made pursuant to the second sentence of the immediately preceding subsection (e), shall be absolute, unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement and any other applicable Letter of Credit Document under all circumstances whatsoever, including without limitation, the following circumstances: (A) any lack of validity or enforceability of any Letter of Credit Document or any term or provisions therein; (B) any amendment or waiver of or any consent to departure from all or any of the Letter of Credit Documents; (C) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against any Issuing Bank, the Administrative Agent, any Lender, any beneficiary of a Letter of Credit or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or in the Letter of Credit Documents or any unrelated transaction; (D) any breach of contract or dispute between the Borrower, any Issuing Bank, the Administrative Agent, any Lender or any other Person;

 

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(E) any demand, statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein or made in connection therewith being untrue or inaccurate in any respect whatsoever; (F) any non-application or misapplication by the beneficiary of a Letter of Credit or of the proceeds of any drawing under such Letter of Credit; (G) payment by an Issuing Bank under any Letter of Credit issued by it against presentation of a draft or certificate which does not strictly comply with the terms of such Letter of Credit; and (H) any other act, omission to act, delay or circumstance whatsoever that might, but for the provisions of this Section, constitute a legal or equitable defense to or discharge of, or provide a right of setoff against, the Borrower’s Reimbursement Obligations.  Notwithstanding anything to the contrary contained in this Section or Section 13.9., but not in limitation of the Borrower’s unconditional obligation to reimburse the applicable Issuing Bank for any drawing made under a Letter of Credit issued by such Issuing Bank as provided in this Section and to repay any Revolving Loan made pursuant to the second sentence of the immediately preceding subsection (e), the Borrower shall have no obligation to indemnify the Administrative Agent, any Issuing Bank or any Lender in respect of any liability incurred by the Administrative Agent, such Issuing Bank or such Lender arising solely out of the bad faith, gross negligence or willful misconduct of the Administrative Agent, such Issuing Bank or such Lender in respect of a Letter of Credit as determined by a court of competent jurisdiction in a final, non-appealable judgment.  Except as otherwise provided in this Section, nothing in this Section shall affect any rights the Borrower may have with respect to the bad faith, gross negligence or willful misconduct of the Administrative Agent, any Issuing Bank or any Lender with respect to any Letter of Credit.

 

(h)                                 Amendments, Etc.  The issuance by an Issuing Bank of any amendment, supplement or other modification to any Letter of Credit issued by it shall be subject to the same conditions applicable under this Agreement to the issuance of new Letters of Credit (including, without limitation, that the request therefor be made through the applicable Issuing Bank and the Administrative Agent), and no such amendment, supplement or other modification shall be issued unless either (i) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such amended, supplemented or modified form or (ii) the Administrative Agent and the Revolving Lenders, if any, required by Section 13.6. shall have consented thereto.  In connection with any such amendment, supplement or other modification, the Borrower shall pay the fees, if any, payable under the last sentence of Section 3.5.(c).

 

(i)                                     Revolving Lenders’ Participation in Letters of Credit.  Immediately upon (i) the Effective Date with respect to all Existing Letters of Credit, and (ii) the issuance by an Issuing Bank of all other Letters of Credit, each Revolving Lender shall be deemed to have absolutely, irrevocably and unconditionally purchased and received from such Issuing Bank, without recourse or warranty, an undivided interest and participation to the extent of such Lender’s Revolving Commitment Percentage of the liability of such Issuing Bank with respect to such Letter of Credit and each Revolving Lender thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to such Issuing Bank to pay and discharge when due, such Lender’s Revolving Commitment Percentage of such Issuing Bank’s liability under such Letter of Credit.  In addition, upon the making of each payment by a Revolving Lender to the Administrative Agent for the account of an Issuing Bank in respect of any Letter of Credit issued by such Issuing Bank pursuant to the immediately following subsection (j), such Lender shall, automatically and without any further action on the part of any Issuing Bank, the Administrative Agent or such Lender, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to such Issuing Bank by the Borrower in respect of such Letter of Credit and (ii) a participation in a percentage equal to such Lender’s Revolving Commitment Percentage in any interest or other amounts payable by the Borrower in respect of such Reimbursement Obligation (other than the Fees payable to such Issuing Bank pursuant to the second and the last sentences of Section 3.5.(c)).

 

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(j)                                    Payment Obligation of Revolving Lenders.  Each Revolving Lender severally agrees to pay to the Administrative Agent, for the account of the applicable Issuing Bank, on demand in immediately available funds in Dollars the amount of such Lender’s Revolving Commitment Percentage of each drawing paid by such Issuing Bank under each Letter of Credit issued by such Issuing Bank to the extent such amount is not reimbursed by the Borrower pursuant to the immediately preceding subsection (d); provided, however, that in respect of any drawing under any Letter of Credit, the maximum amount that any Revolving Lender shall be required to fund, whether as a Revolving Loan or as a participation, shall not exceed such Lender’s Revolving Commitment Percentage of such drawing except as otherwise provided in Section 3.9.(d).  If the notice referenced in the second sentence of Section 2.2.(e) is received by a Revolving Lender not later than 11:00 a.m. Central time, then such Lender shall make such payment available to the Administrative Agent not later than 2:00 p.m. Central time on the date of demand therefor; otherwise, such payment shall be made available to the Administrative Agent not later than 1:00 p.m. Central time on the next succeeding Business Day.  Each Revolving Lender’s obligation to make such payments to the Administrative Agent under this subsection, and the Administrative Agent’s right to receive the same for the account of the applicable Issuing Bank, shall be absolute, irrevocable and unconditional and shall not be affected in any way by any circumstance whatsoever, including without limitation, (i) the failure of any other Revolving Lender to make its payment under this subsection, (ii) the financial condition of the Borrower or any other Loan Party, (iii) the existence of any Default or Event of Default, including any Event of Default described in Section 11.1.(e) or (f), (iv) the termination of the Revolving Commitments or (v) the delivery of Cash Collateral in respect of any Extended Letter of Credit.  Each such payment to the Administrative Agent for the account of any Issuing Bank shall be made without any offset, abatement, withholding or deduction whatsoever.

 

(k)                                 Information to Revolving Lenders.  Promptly following any change in any Letter of Credit outstanding, the applicable Issuing Bank shall deliver to the Administrative Agent, which shall promptly deliver the same to each Revolving Lender and the Borrower, a notice describing the aggregate amount of all Letters of Credit issued by such Issuing Bank and outstanding at such time.  Upon the request of any Revolving Lender from time to time, each Issuing Bank shall deliver any other information reasonably requested by such Lender with respect to each Letter of Credit issued by such Issuing Bank and then outstanding.  Other than as set forth in this subsection, the Issuing Banks shall have no duty to notify the Lenders regarding the issuance or other matters regarding Letters of Credit issued hereunder.  The failure of any Issuing Bank to perform its requirements under this subsection shall not relieve any Revolving Lender from its obligations under the immediately preceding subsection (j).

 

(l)                                     Extended Letters of Credit.  Each Revolving Lender confirms that its obligations under the immediately preceding subsections (i) and (j) shall be reinstated in full and apply if the delivery of any Cash Collateral in respect of an Extended Letter of Credit is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise.

 

Section 2.3.  Swingline Loans.

 

(a)                                 Swingline Loans.  Subject to the terms and conditions hereof, including without limitation Section 2.14., the Swingline Lender agrees to make Swingline Loans to the Borrower, during the period from the Effective Date to but excluding the Swingline Maturity Date, in an aggregate principal amount at any one time outstanding up to, but not exceeding, the lesser (such lesser amount being referred to as the “Swingline Availability”) of (i) $40,000,000, as such amount may be reduced from time to time in accordance with the terms hereof, and (ii) the Revolving Commitment of the Swingline Lender in its capacity as a Revolving Lender minus the aggregate outstanding principal amount of Revolving Loans of the Swingline Lender in its capacity as a Revolving Lender.  If at any time the aggregate principal amount of the Swingline Loans outstanding at such time exceeds the Swingline

 

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Availability at such time, the Borrower shall immediately pay the Administrative Agent for the account of the Swingline Lender the amount of such excess.  Subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow Swingline Loans hereunder.  The borrowing of a Swingline Loan shall not constitute usage of any Revolving Lender’s Revolving Commitment for purposes of calculation of the fee payable under Section 3.5.(b).

 

(b)                                 Procedure for Borrowing Swingline Loans.  The Borrower shall give the Administrative Agent and the Swingline Lender notice pursuant to a Notice of Swingline Borrowing or telephonic notice of each borrowing of a Swingline Loan.  Each Notice of Swingline Borrowing shall be delivered to the Swingline Lender no later than 11:00 a.m. Central time on the proposed date of such borrowing.  Any telephonic notice shall include all information to be specified in a written Notice of Swingline Borrowing and shall be promptly confirmed in writing by the Borrower pursuant to a Notice of Swingline Borrowing sent to the Swingline Lender by telecopy on the same day of the giving of such telephonic notice.  Not later than 1:00 p.m. Central time on the date of the requested Swingline Loan and subject to satisfaction of the applicable conditions set forth in Section 6.2. for such borrowing, the Swingline Lender will make the proceeds of such Swingline Loan available to the Borrower in Dollars, in immediately available funds, at the account specified by the Borrower in the Notice of Swingline Borrowing.

 

(c)                                  Interest.  Swingline Loans shall bear interest at a per annum rate equal to the Base Rate as in effect from time to time plus the Revolving Applicable Margin for Base Rate Loans that are Revolving Loans.  Interest on Swingline Loans is solely for the account of the Swingline Lender (except to the extent a Revolving Lender acquires a participating interest in a Swingline Loan pursuant to the immediately following subsection (e)).  All accrued and unpaid interest on Swingline Loans shall be payable on the dates and in the manner provided in Section 2.4. with respect to interest on Base Rate Loans (except as the Swingline Lender and the Borrower may otherwise agree in writing in connection with any particular Swingline Loan).

 

(d)                                 Swingline Loan Amounts, Etc.  Each Swingline Loan shall be in the minimum amount of $500,000 and integral multiples of $50,000 in excess thereof, or such other minimum amounts agreed to by the Swingline Lender and the Borrower.  Any voluntary prepayment of a Swingline Loan must be in integral multiples of $100,000 or the aggregate principal amount of all outstanding Swingline Loans (or such other minimum amounts upon which the Swingline Lender and the Borrower may agree) and in connection with any such prepayment, the Borrower must give the Swingline Lender and the Administrative Agent prior written notice thereof no later than 12:00 noon Central time on the date of such prepayment.  The Swingline Loans shall, in addition to this Agreement, be evidenced by the Swingline Note.

 

(e)                                  Repayment and Participations of Swingline Loans.  The Borrower agrees to repay each Swingline Loan within 3 Business Day of demand therefor by the Swingline Lender and, in any event, within 5 Business Days after the date such Swingline Loan was made; provided, that the proceeds of a Swingline Loan may not be used to pay a Swingline Loan.  Notwithstanding the foregoing, the Borrower shall repay the entire outstanding principal amount of, and all accrued but unpaid interest on, the Swingline Loans on the Swingline Maturity Date (or such earlier date as the Swingline Lender and the Borrower may agree in writing).  In lieu of demanding repayment of any outstanding Swingline Loan from the Borrower, the Swingline Lender may, on behalf of the Borrower (which hereby irrevocably directs the Swingline Lender to act on its behalf), request a borrowing of Revolving Loans that are Base Rate Loans from the Revolving Lenders in an amount equal to the principal balance of such Swingline Loan.  The amount limitations contained in the second sentence of Section 2.1.(a) shall not apply to any borrowing of such Revolving Loans made pursuant to this subsection.  The Swingline Lender shall give notice to the Administrative Agent of any such borrowing of Revolving Loans not later than 11:00 a.m. Central time at least one Business Day prior to the proposed date of such borrowing.  Promptly after

 

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receipt of such notice of borrowing of Revolving Loans from the Swingline Lender under the immediately preceding sentence, the Administrative Agent shall notify each Revolving Lender of the proposed borrowing.  Not later than 11:00 a.m. Central time on the proposed date of such borrowing, each Revolving Lender will make available to the Administrative Agent at the Principal Office for the account of the Swingline Lender, in immediately available funds, the proceeds of the Revolving Loan to be made by such Lender.  The Administrative Agent shall pay the proceeds of such Revolving Loans to the Swingline Lender, which shall apply such proceeds to repay such Swingline Loan.  If the Revolving Lenders are prohibited from making Revolving Loans required to be made under this subsection for any reason whatsoever, including without limitation, the existence of any of the Defaults or Events of Default described in Sections 11.1.(e) or (f), each Revolving Lender shall purchase from the Swingline Lender, without recourse or warranty, an undivided interest and participation to the extent of such Lender’s Revolving Commitment Percentage of such Swingline Loan, by directly purchasing a participation in such Swingline Loan in such amount and paying the proceeds thereof to the Administrative Agent for the account of the Swingline Lender in Dollars and in immediately available funds.  A Revolving Lender’s obligation to purchase such a participation in a Swingline Loan shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including without limitation, (i) any claim of setoff, counterclaim, recoupment, defense or other right which such Lender or any other Person may have or claim against the Administrative Agent, the Swingline Lender or any other Person whatsoever, (ii) the existence of a Default or Event of Default (including without limitation, any of the Defaults or Events of Default described in Sections 11.1. (e) or (f)), or the termination of any Revolving Lender’s Revolving Commitment, (iii) the existence (or alleged existence) of an event or condition which has had or could have a Material Adverse Effect, (iv) any breach of any Loan Document by the Administrative Agent, any Lender, the Borrower or any other Loan Party, or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.  If such amount is not in fact made available to the Swingline Lender by any Revolving Lender, the Swingline Lender shall be entitled to recover such amount on demand from such Lender, together with accrued interest thereon for each day from the date of demand thereof, at the Federal Funds Rate.  If such Lender does not pay such amount forthwith upon the Swingline Lender’s demand therefor, and until such time as such Lender makes the required payment, the Swingline Lender shall be deemed to continue to have outstanding Swingline Loans in the amount of such unpaid participation obligation for all purposes of the Loan Documents (other than those provisions requiring the other Revolving Lenders to purchase a participation therein).  Further, such Lender shall be deemed to have assigned any and all payments made of principal and interest on its Revolving Loans, and any other amounts due it hereunder, to the Swingline Lender to fund Swingline Loans in the amount of the participation in Swingline Loans that such Lender failed to purchase pursuant to this Section until such amount has been purchased (as a result of such assignment or otherwise).

 

Section 2.4.  Rates and Payment of Interest on Loans.

 

(a)                                 Rates.

 

(i)                                     The Borrower promises to pay to the Administrative Agent for the account of each Revolving Lender interest on the unpaid principal amount of each Revolving Loan made by such Revolving Lender for the period from and including the date of the making of such Revolving Loan to but excluding the date such Revolving Loan shall be paid in full, at the following per annum rates:

 

(A)                               during such periods as such Revolving Loan is a Base Rate Loan, at the Base Rate (as in effect from time to time), plus the Revolving Applicable Margin for Revolving Loans that are Base Rate Loans; and

 

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(B)                               during such periods as such Revolving Loan is a LIBOR Loan, at LIBOR for such Revolving Loan for the Interest Period therefor, plus the Revolving Applicable Margin for Revolving Loans that are LIBOR Loans.

 

(ii)                                  The Borrower promises to pay to the Administrative Agent for the account of each Term Loan Lender interest on the unpaid principal amount of each Term Loan made by such Term Loan Lender for the period from and including the date of the making of such Term Loan to but excluding the date such Term Loan shall be paid in full, at the per annum rates set forth in the applicable Term Loan Supplement.

 

Notwithstanding the foregoing, while an Event of Default exists under Section 11.1.(a), 11.1.(e) or 11.1.(f), or in the case of any other Event of Default, at the direction of the Requisite Lenders, the Borrower shall pay to the Administrative Agent for the account of each Class of Lenders and the Issuing Banks, as the case may be, interest at the Post-Default Rate on the outstanding principal amount of any Class of Loans made by such Lender, on all Reimbursement Obligations and on any other amount payable by the Borrower hereunder or under the Notes held by such Lender to or for the account of such Lender (including without limitation, accrued but unpaid interest to the extent permitted under Applicable Law).

 

(b)                                 Payment of Interest. All accrued and unpaid interest on the outstanding principal amount of each Loan (other than a Swingline Loan) shall be payable (i) in the case of a Base Rate Loan, monthly in arrears on the first day of each month, commencing with the first full calendar month occurring after the Effective Date, (ii) in the case of a LIBOR Loan, on the last day of each Interest Period therefor and, if such Interest Period is longer than 3 months, at three-month intervals following the first day of such Interest Period and (iii) in the case of any Loan, on any date on which the principal balance of such Loan is due and payable in full (whether at maturity, due to acceleration or otherwise).  Interest payable at the Post-Default Rate as provided in the last paragraph of the immediately preceding subsection (a) shall be payable from time to time on demand.  All determinations by the Administrative Agent of an interest rate hereunder shall be conclusive and binding on the Lenders and the Borrower for all purposes, absent manifest error.

 

(c)                                  Borrower Information Used to Determine Applicable Interest Rates.  The parties understand that the applicable interest rate for the Obligations and certain fees set forth herein may be determined and/or adjusted from time to time based upon certain financial ratios and/or other information to be provided or certified to the Lenders by the Borrower (the “Borrower Information”).  If it is subsequently determined that any such Borrower Information was incorrect (for whatever reason, including without limitation because of a subsequent restatement of earnings by the Parent) at the time it was delivered to the Administrative Agent, and if the applicable interest rate or fees calculated for any period were lower than they should have been had the correct information been timely provided, then, such interest rate and such fees for such period shall be automatically recalculated using correct Borrower Information.  The Administrative Agent shall promptly notify the Borrower in writing of any additional interest and fees due because of such recalculation, and the Borrower shall pay such additional interest or fees due to the Administrative Agent, for the account of each Lender, within 5 Business Days of receipt of such written notice.  This provision shall not in any way limit any of the Administrative Agent’s, any Issuing Bank’s, or any Lender’s other rights under this Agreement.

 

Section 2.5.  Number of Interest Periods.

 

There may be no more than 5 different Interest Periods for Revolving Loans that are LIBOR Loans outstanding at the same time.

 

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Section 2.6.  Repayment of Loans.

 

The Borrower shall repay the entire outstanding principal amount of, and all accrued but unpaid interest on, a Class of Loans on the Termination Date for such Class of Loans.

 

Section 2.7.  Prepayments.

 

(a)                                 Optional.  Subject to Section 5.4., the Borrower may prepay any Loan at any time without premium or penalty.  The Borrower shall give the Administrative Agent at least 2 Business Days prior written notice of the prepayment of any LIBOR Loan and 1 Business Day’s prior written notice for the prepayment of any Base Rate Loans (including Swingline Loans).  Each voluntary prepayment of Loans shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess thereof.

 

(b)                                 Mandatory.

 

(i)                                     Revolving Commitment Overadvance.  If at any time the aggregate principal amount of all outstanding Revolving Loans and Swingline Loans, together with the aggregate amount of all Letter of Credit Liabilities, exceeds the aggregate amount of the Revolving Commitments, the Borrower shall immediately upon demand pay to the Administrative Agent for the account of the Revolving Lenders the amount of such excess.

 

(ii)                                  Application of Mandatory Prepayments.  Amounts paid under the preceding subsection (b)(i) shall be applied to pay all amounts of principal outstanding on the Revolving Loans and any Reimbursement Obligations pro rata in accordance with Section 3.2. and if any Letters of Credit are outstanding at such time, the remainder, if any, shall be deposited into the Letter of Credit Collateral Account for application to any Reimbursement Obligations.  If the Borrower is required to pay any outstanding LIBOR Loans by reason of this Section prior to the end of the applicable Interest Period therefor, the Borrower shall pay all amounts due under Section 5.4.

 

(c)                                  No Effect on Derivatives Contracts.  No repayment or prepayment of the Loans pursuant to this Section shall affect any of the Borrower’s obligations under any Derivatives Contracts entered into with respect to the Loans.

 

Section 2.8.  Continuation.

 

So long as no Default or Event of Default exists, the Borrower may on any Business Day, with respect to any LIBOR Loan, elect to maintain such LIBOR Loan or any portion thereof as a LIBOR Loan by selecting a new Interest Period for such LIBOR Loan.  Each Continuation of LIBOR Loans of the same Class shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount, and each new Interest Period selected under this Section shall commence on the last day of the immediately preceding Interest Period.  Each selection of a new Interest Period shall be made by the Borrower giving to the Administrative Agent a Notice of Continuation not later than 11:00 a.m. Central time on the third Business Day prior to the date of any such Continuation.  Such notice by the Borrower of a Continuation shall be by telecopy, electronic mail or other similar form of communication in the form of a Notice of Continuation, specifying (a) the proposed date of such Continuation, (b) the LIBOR Loans, Class and portions thereof subject to such Continuation and (c) the duration of the selected Interest Period, all of which shall be specified in such manner as is necessary to comply with all limitations on Loans outstanding hereunder.  Each Notice of Continuation shall be irrevocable by and binding on the Borrower once given.  Promptly after receipt of a Notice of

 

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Continuation, the Administrative Agent shall notify each Lender holding Loans being Continued of the proposed Continuation.  If the Borrower shall fail to select in a timely manner a new Interest Period for any LIBOR Loan in accordance with this Section, such Loan will automatically, on the last day of the current Interest Period therefor, continue as a LIBOR Loan with an Interest Period of one month; provided, however that if a Default or Event of Default exists, such Loan will automatically, on the last day of the current Interest Period therefor, Convert into a Base Rate Loan notwithstanding the first sentence of Section 2.9. or the Borrower’s failure to comply with any of the terms of such Section.

 

Section 2.9.  Conversion.

 

The Borrower may on any Business Day, upon the Borrower’s giving of a Notice of Conversion to the Administrative Agent by telecopy, electronic mail or other similar form of communication, Convert all or a portion of a Loan of one Type into a Loan of another Type; provided, however, a Base Rate Loan may not be Converted into a LIBOR Loan if a Default or Event of Default exists.  Each Conversion of Base Rate Loans of the same Class into LIBOR Loans of the same Class shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount.  Each such Notice of Conversion shall be given not later than 11:00 a.m. Central time 3 Business Days prior to the date of any proposed Conversion.  Promptly after receipt of a Notice of Conversion, the Administrative Agent shall notify each Lender holding Loans being Converted of the proposed Conversion.  Subject to the restrictions specified above, each Notice of Conversion shall be by telecopy, electronic mail or other similar form of communication in the form of a Notice of Conversion specifying (a) the requested date of such Conversion, (b) the Type and Class of Loan to be Converted, (c) the portion of such Type of Loan to be Converted, (d) the Type of Loan such Loan is to be Converted into and (e) if such Conversion is into a LIBOR Loan, the requested duration of the Interest Period of such Loan.  Each Notice of Conversion shall be irrevocable by and binding on the Borrower once given.

 

Section 2.10.  Notes.

 

(a)                                 Notes.  If requested by any Lender, the Loans of a Class made by such Lender, in addition to this Agreement, such Loans shall also be evidenced by a Note of such Class, payable to the order of such Lender in a principal amount equal to the amount of its Commitment of such Class as originally in effect and otherwise duly completed.  The Swingline Loans made by the Swingline Lender to the Borrower shall, in addition to this Agreement, also be evidenced by a Swingline Note payable to the order of the Swingline Lender.

 

(b)                                 Records.  The date, amount, interest rate, Type and duration of Interest Periods (if applicable) of each Loan made by each Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by such Lender on its books and such entries shall be binding on the Borrower absent manifest error; provided, however, that (i) the failure of a Lender to make any such record shall not affect the obligations of the Borrower under any of the Loan Documents and (ii) if there is a discrepancy between such records of a Lender and the statements of accounts maintained by the Administrative Agent pursuant to Section 3.8., in the absence of manifest error, the statements of account maintained by the Administrative Agent pursuant to Section 3.8. shall be controlling.

 

(c)                                  Lost, Stolen, Destroyed or Mutilated Notes.  Upon receipt by the Borrower of (i) written notice from a Lender that a Note of such Lender has been lost, stolen, destroyed or mutilated, and (ii)(A) in the case of loss, theft or destruction, an unsecured agreement of indemnity from such Lender in form reasonably satisfactory to the Borrower, or (B) in the case of mutilation, upon surrender and cancellation of such Note, the Borrower shall at its own expense execute and deliver to such Lender a new Note dated the date of such lost, stolen, destroyed or mutilated Note.

 

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Section 2.11.  Voluntary Reductions of the Revolving Commitment.

 

The Borrower shall have the right to terminate or reduce the aggregate unused amount of the Revolving Commitments (for which purpose use of the Revolving Commitments shall be deemed to include the aggregate amount of all Letter of Credit Liabilities and the aggregate principal amount of all outstanding Swingline Loans) at any time and from time to time without penalty or premium upon not less than 5 Business Days prior written notice to the Administrative Agent of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which in the case of any partial reduction of the Revolving Commitments shall not be less than $25,000,000 and integral multiples of $25,000,000 in excess of that amount in the aggregate) and shall be irrevocable once given and effective only upon receipt by the Administrative Agent (“Commitment Reduction Notice”); provided, however, (i) the Borrower may not reduce the aggregate amount of the Revolving Commitments below $150,000,000 unless the Borrower is terminating the Revolving Commitments in full and (ii) if such reduction or termination is being made in connection with the closing of another transaction, then it may be made conditional on the closing of such other transaction.  Promptly after receipt of a Commitment Reduction Notice the Administrative Agent shall notify each Revolving Lender of the proposed termination or Revolving Commitment reduction.  The Revolving Commitments, once reduced or terminated pursuant to this Section, may not be increased or reinstated.  The Borrower shall pay all interest and fees on the Revolving Loans accrued to the date of such reduction or termination of the Revolving Commitments to the Administrative Agent for the account of the Revolving Lenders, including but not limited to any applicable compensation due to each Lender in accordance with Section 5.4.

 

Section 2.12.  Extension of Revolving Termination Date.

 

The Borrower shall have the right, exercisable two times, to request that the Administrative Agent and the Revolving Lenders extend the Revolving Termination Date by six months per each request.  The Borrower may exercise such right only by executing and delivering to the Administrative Agent at least 30 days but not more than 90 days prior to the current Revolving Termination Date, a written request for such extension (a “Revolving Extension Request”).  The Administrative Agent shall notify the Lenders if it receives a Revolving Extension Request promptly upon receipt thereof.  Subject to satisfaction of the following conditions, the Revolving Termination Date shall be extended for six months effective upon receipt by the Administrative Agent of a Revolving Extension Request and payment of the fee referred to in the following clause (y): (x) immediately prior to such extension and immediately after giving effect thereto, (A) no Default or Event of Default shall exist and (B) the representations and warranties made or deemed made by the Borrower and each other Loan Party in the Loan Documents to which any of them is a party, shall be true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of the date of such extension with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted under the Loan Documents, (y) the Borrower shall have paid the Fees payable under Section 3.5.(d) and (z) no more than two Revolving Extension Requests shall have been submitted to Administrative Agent by Borrower.  At any time prior to the effectiveness of any such extension, upon the Administrative Agent’s request, the Borrower shall deliver to the Administrative Agent a certificate from the chief executive officer or chief financial officer certifying the matters referred to in the immediately preceding clauses (x)(A) and (x)(B).

 

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Section 2.13.  Expiration Date of Letters of Credit Past Revolving Commitment Termination.

 

If on the date the Revolving Commitments are terminated or reduced to zero (whether voluntarily, by reason of the occurrence of an Event of Default or otherwise) there are any Letters of Credit outstanding hereunder and the aggregate Stated Amount of such Letters of Credit exceeds the balance of available funds on deposit in the Letter of Credit Collateral Account, then the Borrower shall, on such date, pay to the Administrative Agent, for its benefit and the benefit of the Revolving Lenders and the Issuing Banks, for deposit into the Letter of Credit Collateral Account, an amount of money equal to the amount of such excess.

 

Section 2.14.  Amount Limitations.

 

Notwithstanding any other term of this Agreement or any other Loan Document, no Lender shall be required to make a Revolving Loan, the Swingline Lender shall not be required to make a Swingline Loan, the Issuing Banks shall not be required to issue Letters of Credit and no reduction of the Revolving Commitments pursuant to Section 2.11. shall take effect, if immediately after the making of such Loan, the issuance of such Letter of Credit or such reduction in the Revolving Commitments the aggregate principal amount of all outstanding Revolving Loans and Swingline Loans, together with the aggregate amount of all Letter of Credit Liabilities would exceed the aggregate amount of the Revolving Commitments at such time.

 

Section 2.15.  Increase in Revolving Commitments; Term Loans.

 

The Borrower shall have the right during the period from the Effective Date to but excluding the Revolving Termination Date, (a) to request increases in the aggregate amount of the Revolving Commitments and (b) to request that the Lead Arrangers arrange a syndicate of lenders to provide Term Loan Commitments for the making of Term Loans to the Borrower, in each case, by providing written notice thereof to the Administrative Agent, which notice shall specify the Class and amount of Loans requested and which shall be irrevocable once given; provided, however, that after giving effect to any such increases of the Revolving Commitments and the making of any Term Loans, the aggregate amount of the Revolving Commitments and the aggregate outstanding principal balance of the Term Loans shall not exceed $800,000,000 (less the amount of any reductions of the Revolving Commitments effected pursuant to Section 2.11. and any prepayments of Term Loans, in each case, prior to such date) .  Each such increase in the Revolving Commitments or borrowing of Term Loans must be an aggregate minimum amount of $50,000,000 (or such lesser amount as the Borrower and the Administrative Agent may agree in writing) and integral multiples of $5,000,000 in excess thereof.  The Administrative Agent, in consultation with the Borrower, shall manage all aspects of the syndication of such increase in the Revolving Commitments and the making of any Term Loans, including decisions as to the selection of the existing Lenders and/or other banks, financial institutions and other institutional lenders to be approached with respect to any such increase or making of Term Loans and the allocations of any increase in the Revolving Commitments or making of Term Loans among such existing Lenders and/or other banks, financial institutions and other institutional lenders.  No Lender shall be obligated in any way whatsoever to increase its Revolving Commitment, to provide a new Revolving Commitment or to make a Term Loan, and any new Lender becoming a party to this Agreement in connection with any such requested increase of the Revolving Commitments or making of Term Loans must be an Eligible Assignee.  If a new Revolving Lender becomes a party to this Agreement, or if any existing Revolving Lender is increasing its Revolving Commitment, such Lender shall on the date it becomes a Revolving Lender hereunder (or in the case of an existing Revolving Lender, increases its Revolving Commitment) (and as a condition thereto) purchase from the other Revolving Lenders its Revolving Commitment Percentage (determined with respect to the Revolving Lenders’ respective Revolving Commitments after giving effect to the increase of Revolving Commitments) of any outstanding Revolving Loans, by making

 

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available to the Administrative Agent for the account of such other Revolving Lenders, in same day funds, an amount equal to (A) the portion of the outstanding principal amount of such Revolving Loans to be purchased by such Lender, plus (B) the aggregate amount of payments previously made by the other Revolving Lenders under Section 2.2.(j) that have not been repaid, plus (C) interest accrued and unpaid to and as of such date on such portion of the outstanding principal amount of such Revolving Loans.  The Borrower shall pay to the Revolving Lenders amounts payable, if any, to such Lenders under Section 5.4. as a result of the prepayment of any such Revolving Loans.  Effecting any increase of the Revolving Commitments or the making of Term Loans under this Section 2.15. is subject to the following conditions precedent:  (x) no Default or Event of Default shall be in existence on the effective date of such increase of the Revolving Commitments or making of Term Loans, (y) the representations and warranties made or deemed made by the Borrower and any other Loan Party in any Loan Document to which such Loan Party is a party shall be true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on the effective date of such increase of the Revolving Commitments or making of Term Loans except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted hereunder, and (z) the Administrative Agent shall have received each of the following, in form and substance reasonably satisfactory to the Administrative Agent:  (i) if not previously delivered to the Administrative Agent, copies certified by the Secretary or Assistant Secretary of (A) all limited liability company or other necessary action taken by the Borrower to authorize such increase of the Revolving Commitments or Term Loans and (B) all corporate, partnership, member or other necessary action taken by each Guarantor authorizing the guaranty of such increase of the Revolving Commitments or Term Loans; (ii) an opinion of counsel to the Borrower and the Guarantors, and addressed to the Administrative Agent and the Lenders covering such matters as reasonably requested by the Administrative Agent; and (iii) as applicable, (A) if requested by the applicable Lender, a new Revolving Note executed by the Borrower, payable to any such new Revolving Lenders, and replacement Revolving Notes, as applicable, executed by the Borrower payable to any such existing Revolving Lenders increasing their respective Revolving Commitments, in each case, in the amount of such Lender’s Revolving Commitment at the time of the effectiveness of the applicable increase in the aggregate amount of the Revolving Commitments, (B) if requested by the applicable Lender, a Term Note executed by the Borrower, payable to such Term Loan Lender and/or (C) with respect only to the making of Term Loans, execution and delivery of a Term Loan Supplement among the Borrower, the Administrative Agent and the lenders that will become Term Loan Lenders pursuant thereto by each of the parties thereto setting forth (1) the Term Loan Commitments, (2) the maturity date applicable to such Term Loans and any applicable extension options, (3) the interest rate or rates applicable to such Term Loans, (4) the fees applicable to such Term Loans, and (5) such other terms as shall be appropriate, in the judgment of the Administrative Agent, to give effect to the foregoing terms and to provide the rights and benefits of this Agreement and the other Loan Documents to the Term Loan Lenders.  Notwithstanding clause (C) of the immediately preceding sentence, except as provided in the items identified as (1) through (5) thereof, no Term Loan Supplement shall alter the rights of any Lender (except the Term Loan Lender party to the applicable Term Loan Supplement) in a manner that would not be permitted under Section 13.6. without the consent of such Lender unless such consent has been obtained.  In connection with any increase in the aggregate amount of the Revolving Commitments or any making of Term Loans pursuant to this Section 2.15., any Lender becoming a party hereto shall (1) execute such documents and agreements as the Administrative Agent may reasonably request and (2) in the case of any Lender that is organized under the laws of a jurisdiction outside of the United States of America, provide to the Administrative Agent, its name, address, tax identification number and/or such other information as shall be necessary for the Administrative Agent to comply with “know your customer” and anti-money laundering rules and regulations, including without limitation, the Patriot Act.

 

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Section 2.16.  Funds Transfer Disbursements.

 

The Borrower hereby authorizes the Administrative Agent to disburse the proceeds of any Loan made by the Lenders or any of their Affiliates pursuant to the Loan Documents as requested by an authorized representative of the Borrower to any of the accounts designated in the Disbursement Instruction Agreement.

 

ARTICLE III. PAYMENTS, FEES AND OTHER GENERAL PROVISIONS

 

Section 3.1.  Payments.

 

(a)                                 Payments by Borrower.  Except to the extent otherwise provided herein, all payments of principal, interest, Fees and other amounts to be made by the Borrower under this Agreement, the Notes or any other Loan Document shall be made in Dollars, in immediately available funds, without setoff, deduction or counterclaim (excluding Taxes required to be withheld pursuant to Section 3.10.), to the Administrative Agent at the Principal Office, not later than 2:00 p.m. Central time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day).  Subject to Section 11.5., the Borrower shall, at the time of making each payment under this Agreement or any other Loan Document, specify to the Administrative Agent the amounts payable by the Borrower hereunder to which such payment is to be applied.  Each payment received by the Administrative Agent for the account of a Lender under this Agreement or any Note shall be paid to such Lender by wire transfer of immediately available funds in accordance with the wiring instructions provided by such Lender to the Administrative Agent from time to time, for the account of such Lender at the applicable Lending Office of such Lender.  Each payment received by the Administrative Agent for the account of an Issuing Bank under this Agreement shall be paid to such Issuing Bank by wire transfer of immediately available funds in accordance with the wiring instructions provided by such Issuing Bank to the Administrative Agent from time to time, for the account of such Issuing Bank.  In the event the Administrative Agent fails to pay such amounts to such Lender or such Issuing Bank, as the case may be, within one Business Day of receipt of such amounts, the Administrative Agent shall pay interest on such amount until paid at a rate per annum equal to the Federal Funds Rate from time to time in effect.  If the due date of any payment under this Agreement or any other Loan Document would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall continue to accrue at the rate, if any, applicable to such payment for the period of such extension.

 

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

 

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Section 3.2.  Pro Rata Treatment.

 

Except to the extent otherwise provided herein: (a) each borrowing from the Revolving Lenders under Sections 2.1.(a), 2.2.(e) and 2.3.(e) shall be made from the Revolving Lenders, each payment of the fees under Sections 3.5.(a), 3.5.(b)(i), the first sentence of 3.5.(c), and 3.5.(d) shall be made for the account of the Revolving Lenders, and each termination or reduction of the amount of the Revolving Commitments under Section 2.11. shall be applied to the respective Revolving Commitments of the Revolving Lenders, pro rata according to the amounts of their respective Revolving Commitments; (b) the making of any Term Loans under any Term Loan Supplement shall be made from the Term Loan Lenders party to such Term Loan Supplement, pro rata according to the amounts of their respective Term Loan Commitments provided in such Term Loan Supplement; (c) each payment or prepayment of principal of Loans of a Class shall be made for the account of the Lenders of such Class pro rata in accordance with the respective unpaid principal amounts of the Loans of such Class held by them, provided that, subject to Section 3.9., if immediately prior to giving effect to any such payment in respect of any Revolving Loans the outstanding principal amount of the Revolving Loans shall not be held by the Revolving Lenders pro rata in accordance with their respective Revolving Commitments in effect at the time such Revolving Loans were made, then such payment shall be applied to the Revolving Loans in such manner as shall result, as nearly as is practicable, in the outstanding principal amount of the Revolving Loans being held by the Revolving Lenders pro rata in accordance with such respective Revolving Commitments; (d)  each payment of interest in respect of a Class of Loans shall be made for the account of the Lenders of such Class pro rata in accordance with the amounts of interest on such Class of Loans then due and payable to the Lenders of such Class; (e) the Conversion and Continuation of Loans of a particular Class and Type (other than Conversions provided for by Sections 5.1.(c) and 5.5.) shall be made pro rata among the Lenders of such Class according to the amounts of their respective Loans of such Class, and the then current Interest Period for each Lender’s portion of each such Loan of such Type shall be coterminous; (f) the Revolving Lenders’ participation in, and payment obligations in respect of, Swingline Loans under Section 2.3., shall be in accordance with their respective Revolving Commitment Percentages; and (g) the Revolving Lenders’ participation in, and payment obligations in respect of, Letters of Credit under Section 2.2., shall be in accordance with their respective Revolving Commitment Percentages.  All payments of principal, interest, fees and other amounts in respect of the Swingline Loans shall be for the account of the Swingline Lender only (except to the extent any Revolving Lender shall have acquired a participating interest in any such Swingline Loan pursuant to Section 2.3.(e), in which case such payments shall be pro rata in accordance with such participating interests).

 

Section 3.3.  Sharing of Payments, Etc.

 

If a Lender shall obtain payment of any principal of, or interest on, any Loan of a Class made by it to the Borrower under this Agreement or shall obtain payment on any other Obligation owing by the Borrower or any other Loan Party through the exercise of any right of set-off, banker’s lien, counterclaim or similar right or otherwise or through voluntary prepayments directly to a Lender or other payments made by or on behalf of the Borrower or any other Loan Party to a Lender not in accordance with the terms of  this Agreement and such payment should be distributed to the Lenders of the same Class in accordance with Section 3.2. or Section 11.5., as applicable, such Lender shall promptly purchase from the other Lenders of such Class participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans of such Class made by the other Lenders of such Class or other Obligations owed to such other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders of such Class shall share the benefit of such payment (net of any reasonable expenses which may actually be incurred by such Lender in obtaining or preserving such benefit) in accordance with the requirements of Section 3.2. or Section 11.5., as applicable.  To such end, all the Lenders of such Class shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored.  The

 

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Borrower agrees that any Lender of such Class so purchasing a participation (or direct interest) in the Loans or other Obligations owed to such other Lenders of such Class may exercise all rights of set-off, banker’s lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans of such Class in the amount of such participation.  Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower.

 

Section 3.4.  Several Obligations.

 

No Lender shall be responsible for the failure of any other Lender to make a Loan or to perform any other obligation to be made or performed by such other Lender hereunder, and the failure of any Lender to make a Loan or to perform any other obligation to be made or performed by it hereunder shall not relieve the obligation of any other Lender to make any Loan or to perform any other obligation to be made or performed by such other Lender.

 

Section 3.5.  Fees.

 

(a)                                 Closing Fee.  On the Effective Date, the Borrower agrees to pay to the Administrative Agent, the Lead Arrangers and each Lender all fees as have been agreed to in writing by the Borrower, the Administrative Agent and the Lead Arrangers.

 

(b)                                 Facility Fees.

 

(i)                                     Revolving Facility Fees. During the period from the Effective Date to but excluding the Revolving Termination Date, the Borrower agrees to pay to the Administrative Agent for the account of the Revolving Lenders an unused facility fee equal to the sum of the daily amount (the “Unused Amount”) by which the aggregate amount of the Revolving Commitments exceeds the aggregate outstanding principal balance of Revolving Loans and Letter of Credit Liabilities set forth in the table below multiplied by the corresponding per annum rate:

 

	
Unused Amount
    	
 
    	
Unused Fee
   (percent per
   annum)
    	
 
    
	
Greater than 50% of the aggregate amount of   Commitments
    	
 
    	
0.30
    	
%
    
	
Less than or equal to 50% of the aggregate amount   of Commitments
    	
 
    	
0.20
    	
%
    

 

Such fee shall be computed on a daily basis and payable quarterly in arrears on the first day of each January, April, July and October during the term of this Agreement and on the Revolving Termination Date or any earlier date of termination of the Revolving Commitments or reduction of the Revolving Commitments to zero.  For the avoidance of doubt, for purposes of calculating an unused facility fee, the outstanding principal balance of Swingline Loans shall not be factored into the computation.

 

(ii)                                  Term Loan Facility Fees.  The Borrower agrees to pay to the Administrative Agent for the account of each Term Loan Lender party to a Term Loan Supplement all facility fees, if any, set forth in such Term Loan Supplement.

 

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(c)                                  Letter of Credit Fees.  The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Lender a letter of credit fee at a rate per annum equal to the Revolving Applicable Margin for LIBOR Loans that are Revolving Loans times the daily average Stated Amount of each Letter of Credit for the period from and including the date of issuance of such Letter of Credit (x) to and including the date such Letter of Credit expires or is cancelled or terminated or (y) to but excluding the date such Letter of Credit is drawn in full; provided, however, notwithstanding anything to the contrary contained herein, while any Event of Default exists, such letter of credit fees shall accrue at the Post-Default Rate.  In addition to such fees, the Borrower shall pay to each Issuing Bank solely for its own account, a fronting fee in respect of each Letter of Credit issued by such Issuing Bank equal to one-eighth of one percent (0.125%) of the initial Stated Amount of such Letter of Credit; provided, however, in no event shall the aggregate amount of such fee in respect of any Letter of Credit be less than $500.  The fees provided for in this subsection shall be nonrefundable and payable, in the case of the fee provided for in the first sentence, in arrears (i) quarterly on the first day of January, April, July and October, (ii) on the Revolving Termination Date, (iii) on the date the Revolving Commitments are terminated or reduced to zero and (iv) thereafter from time to time on demand of the Administrative Agent and in the case of the fee provided for in the second sentence, at the time of issuance of such Letter of Credit.  The Borrower shall pay directly to the applicable Issuing Bank from time to time on demand all commissions, charges, costs and expenses in the amounts customarily charged or incurred by such Issuing Bank from time to time in like circumstances with respect to the issuance, amendment, renewal or extension of any Letter of Credit or any other transaction relating thereto.

 

(d)                                 Revolving Extension Fee.  Each time the Borrower exercises its right to extend the Revolving Termination Date in accordance with Section 2.12., the Borrower agrees to pay to the Administrative Agent for the account of each Revolving Lender a fee equal to three-fortieths of one percent (0.075%) of the amount of such Lender’s Commitment (whether or not utilized).

 

(e)                                  Administrative and Other Fees.  The Borrower agrees to pay the administrative and other fees of the Administrative Agent as provided in the Fee Letter and as may be otherwise agreed to in writing from time to time by the Borrower and the Administrative Agent.

 

Section 3.6.  Computations.

 

Unless otherwise expressly set forth herein, any accrued interest on any Loan, any Fees or any other Obligations due hereunder shall be computed on the basis of a year of 360 days and the actual number of days elapsed.

 

Section 3.7.  Usury.

 

In no event shall the amount of interest due or payable on the Loans or other Obligations exceed the maximum rate of interest allowed by Applicable Law and, if any such payment is paid by the Borrower or any other Loan Party or received by any Lender, then such excess sum shall be credited as a payment of principal, unless the Borrower shall notify the respective Lender in writing that the Borrower elects to have such excess sum returned to it forthwith.  It is the express intent of the parties hereto that the Borrower not pay and the Lenders not receive, directly or indirectly, in any manner whatsoever, interest in excess of that which may be lawfully paid by the Borrower under Applicable Law.  The parties hereto hereby agree and stipulate that the only charge imposed upon the Borrower for the use of money in connection with this Agreement is and shall be the interest specifically described in Section 2.4.(a)(i) and (ii) and, with respect to Swingline Loans, in Section 2.3.(c).  Notwithstanding the foregoing, the parties hereto further agree and stipulate that all agency fees, syndication fees, facility fees, closing fees, letter of credit fees, underwriting fees, default charges, late charges, funding or “breakage” charges, increased cost charges, attorneys’ fees and reimbursement for costs and expenses paid by the Administrative Agent or

 

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any Lender to third parties or for damages incurred by the Administrative Agent or any Lender, in each case, in connection with the transactions contemplated by this Agreement and the other Loan Documents, are charges made to compensate the Administrative Agent or any such Lender for underwriting or administrative services and costs or losses performed or incurred, and to be performed or incurred, by the Administrative Agent and the Lenders in connection with this Agreement and shall under no circumstances be deemed to be charges for the use of money.  All charges other than charges for the use of money shall be fully earned and nonrefundable when due.

 

Section 3.8.  Statements of Account.

 

The Administrative Agent will account to the Borrower monthly with a statement of Loans, accrued interest and Fees, charges and payments made pursuant to this Agreement and the other Loan Documents, and such account rendered by the Administrative Agent shall be deemed conclusive upon the Borrower absent manifest error.  The failure of the Administrative Agent to deliver such a statement of accounts shall not relieve or discharge the Borrower from any of its obligations hereunder.

 

Section 3.9.  Defaulting Lenders.

 

Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by Applicable Law:

 

(a)                                 Waivers and Amendments.  Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Requisite Lenders and in Section 13.6.

 

(b)                                 Defaulting Lender Waterfall.  Any payment of principal, interest, Fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article XI. or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 13.3. shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, in the case of a Defaulting Lender that is a Revolving Lender, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the Issuing Banks and the Swingline Lender hereunder; third, in the case of a Defaulting Lender that is a Revolving Lender, to Cash Collateralize the Issuing Banks’ Fronting Exposures with respect to such Defaulting Lender in accordance with subsection (e) below; fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) in the case of a Defaulting Lender that is a Revolving Lender, Cash Collateralize the Issuing Banks’ future Fronting Exposures with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with subsection (e) below; sixth, to the payment of any amounts owing to the Lenders, the Issuing Banks or the Swingline Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, any Issuing Bank or the Swingline Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if

 

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(x) such payment is a payment of the principal amount of any Loans of any Class or amounts owing by such Defaulting Lender under Section 2.2.(j) in respect of Letters of Credit (such amounts “L/C Disbursements”), in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Article VI. were satisfied or waived, such payment shall be applied solely to pay the Loans of such Class of, and L/C Disbursements owed to, all Non-Defaulting Lenders of the applicable Class on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Disbursements owed to, such Defaulting Lender until such time as all Loans of such Class and, as applicable, funded and unfunded participations in Letter of Credit Liabilities and Swingline Loans are held by the Revolving Lenders pro rata in accordance with their respective Revolving Commitment Percentages (determined without giving effect to the immediately following subsection (d)) and all Term Loans (if any) are held by the Term Loan Lenders pro rata as if there had been no Defaulting Lenders that are Term Loan Lenders.  Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this subsection shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.

 

(c)                                  Certain Fees.

 

(i)                                     No Defaulting Lender shall be entitled to receive any Fee payable under Section 3.5.(b)(i) in the case of a Defaulting Lender that is a Revolving Lender or Section 3.5.(b)(ii) in the case of a Defaulting Lender that is a Term Loan Lender for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).

 

(ii)                                  Each Defaulting Lender that is a Revolving Lender shall be entitled to receive the Fee payable under Section 3.5.(c) for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Revolving Commitment Percentage of the stated amount of Letters of Credit for which it has provided Cash Collateral pursuant to the immediately following subsection (e).

 

(iii)                               With respect to any Fee not required to be paid to any Defaulting Lender that is a Revolving Lender pursuant to the immediately preceding clause (ii), the Borrower shall (x) pay to each Non-Defaulting Lender that is a Revolving Lender that portion of any such Fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in Letter of Credit Liabilities or Swingline Loans that has been reallocated to such Non-Defaulting Lender pursuant to the immediately following subsection (d), (y) pay to each Issuing Bank and the Swingline Lender, as applicable, the amount of any such Fee otherwise payable to such Defaulting Lender to the extent allocable to such Issuing Bank’s or Swingline Lender’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such Fee.

 

(d)                                 Reallocation of Participations to Reduce Fronting Exposure.  In the case of a Defaulting Lender that is a Revolving Lender, all or any part of such Defaulting Lender’s participation in Letter of Credit Liabilities and Swingline Loans shall be reallocated among the Non-Defaulting Lenders that are Revolving Lenders in accordance with their respective Revolving Commitment Percentages (determined without regard to such Defaulting Lender’s Revolving Commitment) but only to the extent that such reallocation does not cause the aggregate Revolving Credit Exposure of any Non-Defaulting Lender that is a Revolving Lender to exceed such Non-Defaulting Lender’s Revolving Commitment.  No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Revolving Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.

 

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(e)                                  Cash Collateral, Repayment of Swingline Loans.

 

(i)                                     If the reallocation described in the immediately preceding subsection (d) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under law, (x) first, prepay Swingline Loans in an amount equal to the Swingline Lender’s Fronting Exposure and (y) second, Cash Collateralize each Issuing Banks’ Fronting Exposure, in accordance with the procedures set forth in this subsection.

 

(ii)                                  At any time that there shall exist a Defaulting Lender that is a Revolving Lender, within 1 Business Day following the written request of the Administrative Agent or any Issuing Bank (with a copy to the Administrative Agent), the Borrower shall Cash Collateralize such Issuing Bank’s Fronting Exposure with respect to such Defaulting Lender (determined after giving effect to the immediately preceding subsection (d) and any Cash Collateral provided by such Defaulting Lender) in an amount not less than the aggregate Fronting Exposure of such Issuing Bank with respect to Letters of Credit issued by such Issuing Bank and outstanding at such time.

 

(iii)                               The Borrower, and to the extent provided by any Defaulting Lender that is a Revolving Lender, such Defaulting Lender, hereby grant to the Administrative Agent, for the benefit of the Issuing Banks, and agree to maintain, a first priority security interest in all such Cash Collateral as security for the obligation of Defaulting Lenders that are Revolving Lenders to fund participations in respect of Letter of Credit Liabilities, to be applied pursuant to the immediately following clause (iv).  If at any time the Administrative Agent determines that Cash Collateral is subject to any right or claim of any Person other than the Administrative Agent and the Issuing Banks as herein provided, or that the total amount of such Cash Collateral is less than the aggregate Fronting Exposure of the Issuing Banks with respect to Letters of Credit issued and outstanding at such time, the Borrower will, promptly upon demand by the Administrative Agent, pay or provide to the Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency (after giving effect to any Cash Collateral provided by the Defaulting Lender that is a Revolving Lender).

 

(iv)                              Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under this Section in respect of Letters of Credit shall be applied to the satisfaction of the obligation of a Defaulting Lender that is a Revolving Lender to fund participations in respect of Letter of Credit Liabilities (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) for which the Cash Collateral was so provided, prior to any other application of such property as may otherwise be provided for herein.

 

(v)                                 Cash Collateral (or the appropriate portion thereof) provided to reduce the Issuing Banks’ Fronting Exposures shall no longer be required to be held as Cash Collateral pursuant to this subsection following (x) the elimination of the applicable Fronting Exposure (including by the termination of Defaulting Lender status of the applicable Revolving Lender), or (y) the determination by the Administrative Agent and the Issuing Banks that there exists excess Cash Collateral; provided that, subject to the immediately preceding subsection (b), the Person providing Cash Collateral and the Issuing Banks may (but shall not be obligated to) agree that Cash Collateral shall be held to support future anticipated Fronting Exposure or other obligations and provided further that to the extent that such Cash Collateral was provided by the Borrower, such Cash Collateral shall remain subject to the security interest granted pursuant to the Loan Documents.

 

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(f)                                   Defaulting Lender Cure.  If the Borrower and the Administrative Agent, and solely in the case of a Defaulting Lender that is a Revolving Lender, the Swingline Lender and the Issuing Banks, agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause, as applicable, (i) the Revolving Loans and funded and unfunded participations in Letters of Credit and Swingline Loans to be held pro rata by the Revolving Lenders in accordance with their respective Revolving Commitment Percentages (determined without giving effect to the immediately preceding subsection (d)) and (ii) the Term Loans (if any) to be held by the Term Loan Lenders pro rata as if there had been no Defaulting Lenders of such Class, whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to Fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.

 

(g)                                  New Swingline Loans/Letters of Credit.  So long as any Revolving Lender is a Defaulting Lender, (i) the Swingline Lender shall not be required to fund any Swingline Loans unless it is satisfied that it will have no Fronting Exposure after giving effect to such Swingline Loan and (ii) no Issuing Bank shall be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.

 

(h)                                 Purchase of Defaulting Lender’s Commitment.  During any period that a Lender is a Defaulting Lender, the Borrower may, by the Borrower giving written notice thereof to the Administrative Agent, such Defaulting Lender and the other Lenders, demand that such Defaulting Lender assign its Commitments and Loans to an Eligible Assignee subject to and in accordance with the provisions of Section 13.5.(b).  No party hereto shall have any obligation whatsoever to initiate any such replacement or to assist in finding an Eligible Assignee.  In addition, any Lender who is not a Defaulting Lender may, but shall not be obligated, in its sole discretion, to acquire the face amount of all or a portion of such Defaulting Lender’s Commitments and Loans via an assignment subject to and in accordance with the provisions of Section 13.5.(b).  In connection with any such assignment, such Defaulting Lender shall promptly execute all documents reasonably requested to effect such assignment, including an appropriate Assignment and Assumption and, notwithstanding Section 13.5.(b), shall pay to the Administrative Agent an assignment fee in the amount of $7,500.  The exercise by the Borrower of its rights under this Section shall be at the Borrower’s sole cost and expense and at no cost or expense to the Administrative Agent or any of the Lenders.

 

Section 3.10.  Taxes.

 

(a)                                 Issuing Banks.  For purposes of this Section, the term “Lender” includes each Issuing Bank and the term “Applicable Law” includes FATCA.

 

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

 

(c)                                  Payment of Other Taxes by the Borrower.  The Borrower and the other Loan Parties shall timely pay to the relevant Governmental Authority in accordance with Applicable Law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.

 

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

 

(e)                                  Indemnification by the Lenders.  Each Lender shall severally indemnify the Administrative Agent, within 10 Business Days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower or another Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower and the other Loan Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 13.5. relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error.  Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this subsection.  The provisions of this subsection shall continue to inure to the benefit of an Administrative Agent following its resignation or removal as Administrative Agent.

 

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

 

(g)                                  Status of Lenders.

 

(i)                                     Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the

 

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Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding.  In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.  Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in the immediately following clauses (ii)(A), (ii)(B) and (ii)(D)) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

 

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

 

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

 

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

 

(I)                                   in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, an electronic copy (or an original if requested by the Borrower or the Administrative Agent) of an executed IRS Form W-8BEN or W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

 

(II)                              an electronic copy (or an original if requested by the Borrower or the Administrative Agent) of an executed IRS Form W-8ECI;

 

(III)                         in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Internal Revenue Code, (x) a certificate substantially in the form of Exhibit J-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A)

 

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of the Internal Revenue Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Internal Revenue Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN or W-8BEN-E, as applicable; or

 

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

 

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

 

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

 

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

 

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(h)                                 Treatment of Certain Refunds.  If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section (including by the payment of additional amounts pursuant to this Section), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund).  Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this subsection (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority.  Notwithstanding anything to the contrary in this subsection, in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this subsection the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid.  This subsection shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

 

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

 

ARTICLE IV.  UNENCUMBERED PROPERTIES

 

Section 4.1.  Eligibility of Unencumbered Properties.

 

(a)                                 Initial Unencumbered Properties.  The Properties identified on Schedule 4.1. shall, on the Effective Date, be Unencumbered Properties.

 

(b)                                 Additional Unencumbered Properties.  If after the Effective Date the Borrower desires that any additional Property become an Unencumbered Property, the Borrower shall so notify the Administrative Agent in writing (a “Notice of Additional Unencumbered Property”).  Except as otherwise provided in the immediately following subsection (c), no Property shall become an Unencumbered Property unless it is an Eligible Property, and unless and until the Borrower delivers to the Administrative Agent all of the following, in form and substance reasonably satisfactory to the Administrative Agent (unless waived in writing by the Requisite Lenders):

 

(i)                                     an executive summary of the Property including, at a minimum, the following information relating to such Property: (A) a description of such Property, such description to include the age, location, site plan and physical condition of such Property; and (B) the purchase price paid or to be paid for such Property;

 

(ii)                                  an operating statement for such Property audited or certified by a representative of the Borrower as being true and correct in all material respects and prepared in accordance with GAAP for the previous three fiscal years, provided that, if such Property was owned by the Borrower or a Subsidiary for less than three years, such information shall only be required to be delivered to the extent reasonably available to the Borrower and such certification may be based upon the Borrower’s knowledge and provided further, that if such Property has been operating for less than three years, the Borrower shall provide such projections and other information concerning the anticipated operation of such Property as the Administrative Agent may reasonably request;

 

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(iii)                               a pro forma operating statement or an operating budget for such Property with respect to the current fiscal year and, if available, the immediately following fiscal year;

 

(iv)                              if such Property is located in a seismic zone rated 3 or higher, an all assets seismic portfolio report covering all applicable Properties prepared by a firm reasonably acceptable to the Administrative Agent;

 

(v)                                 if such Property is leased under a ground lease, a copy of such ground lease;

 

(vi)                              a copy of the most current Smith Travel Research STAR Report available for such Property;

 

(vii)                           a Compliance Certificate showing pro forma compliance with the covenants set forth in Section 10.1. after giving effect to the addition of such Property as an Unencumbered Property; and

 

(viii)                        such other information as the Administrative Agent may reasonably request in order to confirm that such Property is an Eligible Property.

 

A Notice of Additional Unencumbered Property executed and delivered by the Borrower to the Administrative Agent shall constitute a certification by the Borrower to the Administrative Agent and the Lenders that such Property satisfies all of the requirements contained in the definition of Eligible Property unless such notice states otherwise (in which case the provisions of the immediately following subsection (c) shall apply).  Within 5 Business Days after the Administrative Agent’s receipt of a Notice of Additional Unencumbered Property and the other reports and documents required under this subsection (b), the Administrative Agent will make such notice, reports and documents available to each of the Lenders.  Within 10 Business Days after the Administrative Agent’s receipt of a Notice of Additional Unencumbered Property and the other reports and documents required under this subsection (b), the Administrative Agent shall notify the Borrower and the Lenders if the Administrative Agent has confirmed that such Property satisfies all of the requirements contained in the definition of Eligible Property.

 

(c)                                  Nonconforming Properties.  If a Property which the Borrower desires to be included as an Unencumbered Property does not satisfy the requirements of an Eligible Property, then the Administrative Agent, upon written request of the Borrower, shall request that the Requisite Lenders in their sole discretion determine whether such Property shall be included as an Unencumbered Property.  In connection therewith, the Borrower shall promptly deliver the information required by the immediately preceding subsection (b) to each of the Lenders.  If such a request is made by the Administrative Agent to the Lenders, within 10 Business Days after the date on which a Lender has received such request and all of the items referred to in the immediately preceding subsection (b), each such Lender shall notify the Administrative Agent in writing whether or not such Lender accepts such Property as an Unencumbered Property in its sole discretion.  If a Lender fails to give such notice within such time period, such Lender shall be deemed to have approved such Property as an Unencumbered Property.  A Property shall become an Unencumbered Property under this subsection (c) only upon the approval and/or deemed approval of the Requisite Lenders.

 

(d)                                 Documents with Respect to Non-Guarantor Subsidiary.  If a Property owned by a Subsidiary that is not a Guarantor is to become an Unencumbered Property, the Borrower shall deliver to the Administrative Agent an Accession Agreement executed by such Subsidiary together with the other items required by Section 8.13.(a).  If the improvements on such a Property or the furniture, fixtures and

 

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equipment utilized in the operation of such Property are owned or leased by a Subsidiary (the “Accommodation Subsidiary”) other than the Subsidiary that owns or leases such Property, then the Borrower shall also deliver to the Administrative Agent an Accession Agreement executed by such Accommodation Subsidiary.  Until such time as the Administrative Agent shall have received the items referred to in the immediately preceding two sentences with respect to such Subsidiary and any applicable Accommodation Subsidiary, the applicable Property shall not be considered to be an Unencumbered Property.

 

Section 4.2.  Removal of Unencumbered Properties.

 

The Borrower may, upon not less than 10 Business Days’ notice to the Administrative Agent (or such shorter period as may be acceptable to the Administrative Agent in its sole discretion), request removal of a Property as an Unencumbered Property, subject to the following conditions: (a) no Default or Event of Default shall exist (other than a Default or Event of Default that would be cured by removal of such Property as an Unencumbered Property) or would result therefrom and (b) the Borrower shall have delivered to Administrative Agent a Compliance Certificate, prepared as of the last day of the most recent fiscal quarter for which financial statements have been required to be delivered pursuant to Section 9.1.or Section 9.2., evidencing compliance with the covenants set forth in Section 10.1. as if such Property had not been included in as an Unencumbered Property at such time.  Upon the Administrative Agent’s confirmation that the conditions to such removal have been satisfied, the Administrative Agent shall so notify the Borrower and the Lenders in writing specifying the date of such removal.

 

ARTICLE V. YIELD PROTECTION, ETC.

 

Section 5.1.  Additional Costs; Capital Adequacy.

 

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

 

(b)                                 Additional Costs.  In addition to, and not in limitation of the immediately preceding subsection, the Borrower shall promptly pay to the Administrative Agent for the account of a Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs incurred by such Lender that it determines are attributable to its making or maintaining of any LIBOR Loans or its obligation to make any LIBOR Loans hereunder, any reduction in any amount receivable by such Lender under this Agreement or any of the other Loan Documents in respect of any of such LIBOR Loans or such obligation or the maintenance by such Lender of capital in respect of its LIBOR Loans or its Commitments (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), resulting from any Regulatory Change that:

 

(i)                                     changes the basis of taxation of any amounts payable to such Lender under this Agreement or any of the other Loan Documents in respect of any of such LIBOR Loans or its Commitments (other than Indemnified Taxes or Excluded Taxes);

 

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(ii)                                  imposes or modifies any reserve, special deposit, compulsory loan, insurance charge or similar requirements (other than Regulation D of the Board of Governors of the Federal Reserve System or other similar reserve requirement applicable to any other category of liabilities or category of extensions of credit or other assets by reference to which the interest rate on LIBOR Loans is determined to the extent utilized when determining LIBOR for such Loans) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, or other credit extended by, or any other acquisition of funds by such Lender (or its parent corporation), or any commitment of such Lender (including, without limitation, the Commitments of such Lender hereunder); or

 

(iii)                               imposes on any Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or the Loans made by such Lender.

 

(c)                                  Lender’s Suspension of LIBOR Loans.  Without limiting the effect of the provisions of the immediately preceding subsections (a) and (b), if by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender that includes deposits by reference to which the interest rate on LIBOR Loans is determined as provided in  this Agreement or a category of extensions of credit or other assets of such Lender that includes LIBOR Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets that it may hold, then, if such Lender so elects by notice to the Borrower (with a copy to the Administrative Agent), the obligation of such Lender to make or Continue, or to Convert Base Rate Loans into, LIBOR Loans shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.5. shall apply).

 

(d)                                 Additional Costs in Respect of Letters of Credit.  Without limiting the obligations of the Borrower under the preceding subsections of this Section (but without duplication), if as a result of any Regulatory Change or any risk-based capital guideline or other requirement heretofore or hereafter issued by any Governmental Authority there shall be imposed, modified or deemed applicable any Tax (other than Indemnified Taxes, Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and Connection Income Taxes), reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit and the result shall be to increase the cost to an Issuing Bank of issuing (or any Revolving  Lender of purchasing participations in) or maintaining its obligation hereunder to issue (or purchase participations in) any Letter of Credit or reduce any amount receivable by such Issuing Bank or any Revolving Lender hereunder in respect of any Letter of Credit, then, upon demand by such Issuing Bank or such Lender, the Borrower shall pay immediately to such Issuing Bank or, in the case of such Lender, to the Administrative Agent for the account of such Lender, from time to time as specified by such Issuing Bank or such Lender, such additional amounts as shall be sufficient to compensate such Issuing Bank or such Lender for such increased costs or reductions in amount.

 

(e)                                  Notification and Determination of Additional Costs.  Each of the Administrative Agent, each Issuing Bank and each Lender, as the case may be, agrees to notify the Borrower (and in the case of an Issuing Bank and or a Lender, to notify the Administrative Agent) of any event occurring after the Agreement Date entitling the Administrative Agent, such Issuing Bank or such Lender to compensation under any of the preceding subsections of this Section 5.1. as promptly as practicable.  The Administrative Agent, each Issuing Bank and each Lender, as the case may be, agrees to furnish to the Borrower (and in the case of an Issuing Bank or a Lender, to the Administrative Agent as well) a certificate setting forth the basis and amount of each request for compensation under this Section 5.1..  Determinations by the Administrative Agent, such Issuing Bank or such Lender, as the case may be, of the effect of any Regulatory Change shall be conclusive and binding for all purposes, absent manifest error.  The Borrower shall pay the Administrative Agent, such Issuing Bank and or any such Lender, as the case may be, the amount shown as due on any such certificate within 10 Business Days after receipt thereof.

 

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(f)                                   Delay in Requests.  Failure or delay on the part of the Administrative Agent, any Lender or any Issuing Bank to demand compensation pursuant to this Section 5.1. shall not constitute a waiver of the Administrative Agent’s, such Lender’s or such Issuing Bank’s right to demand such compensation; provided that the Borrower shall not be required to compensate the Administrative Agent, any Lender or any Issuing Bank pursuant to this Section 5.1. for any increased costs incurred or reductions suffered more than six months prior to the date that the Administrative Agent, such Lender or such Issuing Bank, as the case may be, notifies the Borrower of the event giving rise to such increased costs or reductions, and of the Administrative Agent’s, such Lender’s or such Issuing Bank’s, as the case may be, intention to claim compensation therefor (except that, if the event giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof).

 

Section 5.2.  Suspension of LIBOR Loans.

 

Anything herein to the contrary notwithstanding, if, on or prior to the determination of LIBOR for any Interest Period:

 

(a)                                 the Administrative Agent shall determine (which determination shall be conclusive) that reasonable and adequate means do not exist for the ascertaining LIBOR for such Interest Period;

 

(b)                                 the Administrative Agent reasonably determines (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of LIBOR are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for LIBOR Loans as provided herein; or

 

(c)                                  the Administrative Agent reasonably determines (which determination shall be conclusive) that the relevant rates of interest referred to in the definition of LIBOR upon the basis of which the rate of interest for LIBOR Loans for such Interest Period is to be determined are not likely to adequately cover the cost to any Lender of making or maintaining LIBOR Loans for such Interest Period;

 

then the Administrative Agent shall give the Borrower and each Lender prompt notice thereof and, so long as such condition remains in effect, the Lenders shall be under no obligation to, and shall not, make additional LIBOR Loans, Continue LIBOR Loans or Convert Loans into LIBOR Loans and the Borrower shall, on the last day of each current Interest Period for each outstanding LIBOR Loan, either prepay such Loan or Convert such Loan into a Base Rate Loan.

 

Section 5.3.  Illegality.

 

Notwithstanding any other provision of this Agreement, if any Lender shall determine (which determination shall be conclusive and binding) that it is unlawful for such Lender to honor its obligation to make or maintain LIBOR Loans hereunder, then such Lender shall promptly notify the Borrower thereof (with a copy of such notice to the Administrative Agent) and such Lender’s obligation to make or Continue, or to Convert Loans of any other Type into, LIBOR Loans shall be suspended until such time as such Lender may again make and maintain LIBOR Loans (in which case the provisions of Section 5.5. shall be applicable).

 

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Section 5.4.  Compensation.

 

The Borrower shall pay to the Administrative Agent for the account of each Lender, upon the request of the Administrative Agent, such amount or amounts as the Administrative Agent shall determine in its sole discretion shall be sufficient to compensate such Lender for any loss, cost or expense attributable to:

 

(a)                                 any payment or prepayment (whether mandatory or optional) of a LIBOR Loan, or Conversion of a LIBOR Loan, made by such Lender for any reason (including, without limitation, acceleration) on a date other than the last day of the Interest Period for such Loan; or

 

(b)                                 any failure by the Borrower for any reason (including, without limitation, the failure of any of the applicable conditions precedent specified in Section 6.2. to be satisfied but excluding any failure as a result of a notice under Section 5.2.) to borrow a LIBOR Loan from such Lender on the date for such borrowing, or to Convert a Base Rate Loan into a LIBOR Loan or Continue a LIBOR Loan on the requested date of such Conversion or Continuation.

 

Not in limitation of the foregoing, such compensation shall include, without limitation, in the case of a LIBOR Loan, an amount equal to the then present value of (i) the amount of interest that would have accrued on such LIBOR Loan for the remainder of the Interest Period at the rate applicable to such LIBOR Loan, less (ii) the amount of interest that would accrue on the same LIBOR Loan for the same period if LIBOR were set on the date on which such LIBOR Loan was repaid, prepaid or Converted or the date on which the Borrower failed to borrow, Convert or Continue such LIBOR Loan, as applicable, calculating present value by using as a discount rate LIBOR quoted on such date.  Upon the Borrower’s request, the Administrative Agent shall provide the Borrower with a statement setting forth the basis for requesting such compensation and the method for determining the amount thereof.  Any such statement shall be conclusive absent manifest error.

 

Section 5.5.  Treatment of Affected Loans.

 

If the obligation of any Lender to make LIBOR Loans or to Continue, or to Convert Base Rate Loans into, LIBOR Loans shall be suspended pursuant to Section 5.1.(c), Section 5.2. or Section 5.3. then such Lender’s LIBOR Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for LIBOR Loans (or, in the case of a Conversion required by Section 5.1.(c), Section 5.2., or Section 5.3. on such earlier date as such Lender or the Administrative Agent, as applicable, may specify to the Borrower (with a copy to the Administrative Agent, as applicable)) and, unless and until such Lender or the Administrative Agent, as applicable, gives notice as provided below that the circumstances specified in Section 5.1., Section 5.2. or Section 5.3. that gave rise to such Conversion no longer exist:

 

(a)                                 to the extent that such Lender’s LIBOR Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender’s LIBOR Loans shall be applied instead to its Base Rate Loans; and

 

(b)                                 all Loans that would otherwise be made or Continued by such Lender as LIBOR Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into LIBOR Loans shall remain as Base Rate Loans.

 

If such Lender or the Administrative Agent, as applicable, gives notice to the Borrower (with a copy to the Administrative Agent, as applicable) that the circumstances specified in Section 5.1.(c), 5.2. or 5.3. that gave rise to the Conversion of such Lender’s LIBOR Loans pursuant to this Section no longer exist

 

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(which such Lender or the Administrative Agent, as applicable, agrees to do promptly upon such circumstances ceasing to exist) at a time when LIBOR Loans made by other Lenders are outstanding, then such Lender’s Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding LIBOR Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding LIBOR Loans and by such Lender are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments.

 

Section 5.6.  Affected Lenders.

 

If (a) a Lender requests compensation pursuant to Section 3.10. or 5.1., and the Requisite Lenders are not also doing the same, (b) the obligation of any Lender to make LIBOR Loans or to Continue, or to Convert Base Rate Loans into, LIBOR Loans shall be suspended pursuant to Section 5.1.(c) or 5.3. but the obligation of the Requisite Lenders shall not have been suspended under such Sections or (c) a Lender becomes a Non-Consenting Lender or a Defaulting Lender, then, so long as there does not then exist any Default or Event of Default, the Borrower may demand that such Lender (the “Affected Lender”), and upon such demand the Affected Lender shall promptly, assign its Commitment to an Eligible Assignee subject to and in accordance with the provisions of Section 13.5.(b) for a purchase price equal to (x) the aggregate principal balance of all Loans then owing to the Affected Lender, plus (y) the aggregate amount of payments previously made by the Affected Lender under Section 2.2.(j) that have not been repaid, plus (z) any accrued but unpaid interest thereon and accrued but unpaid fees owing to the Affected Lender, or any other amount as may be mutually agreed upon by such Affected Lender and Eligible Assignee.  Each of the Administrative Agent and the Affected Lender shall reasonably cooperate in effectuating the replacement of such Affected Lender under this Section, but at no time shall the Administrative Agent, such Affected Lender, any other Lender or any Titled Agent be obligated in any way whatsoever to initiate any such replacement or to assist in finding an Eligible Assignee.  The exercise by the Borrower of its rights under this Section shall be at the Borrower’s sole cost and expense and at no cost or expense to the Administrative Agent, the Affected Lender or any of the other Lenders.  The terms of this Section shall not in any way limit the Borrower’s obligation to pay to any Affected Lender compensation owing to such Affected Lender pursuant to this Agreement (including, without limitation, pursuant to Sections 3.10., 5.1. or 5.4.) with respect to any period up to the date of replacement.

 

Section 5.7.  Change of Lending Office.

 

Each Lender agrees that it will use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate an alternate Lending Office with respect to any of its Loans affected by the matters or circumstances described in Sections 3.10., 5.1. or 5.3. to reduce the liability of the Borrower or avoid the results provided thereunder, so long as such designation is not disadvantageous to such Lender as determined by such Lender in its sole discretion, except that such Lender shall have no obligation to designate a Lending Office located in the United States of America.

 

Section 5.8.  Assumptions Concerning Funding of LIBOR Loans.

 

Calculation of all amounts payable to a Lender under this Article shall be made as though such Lender had actually funded LIBOR Loans through the purchase of deposits in the relevant market bearing interest at the rate applicable to such LIBOR Loans in an amount equal to the amount of the LIBOR Loans and having a maturity comparable to the relevant Interest Period; provided, however, that each Lender may fund each of its LIBOR Loans in any manner it sees fit and the foregoing assumption shall be used only for calculation of amounts payable under this Article.

 

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ARTICLE VI. CONDITIONS PRECEDENT

 

Section 6.1.  Initial Conditions Precedent.

 

The obligation of the Lenders to effect or permit the occurrence of the first Credit Event hereunder, whether as the making of a Loan or the issuance of a Letter of Credit, is subject to the satisfaction or waiver of the following conditions precedent:

 

(a)                                 The Administrative Agent shall have received each of the following, in form and substance satisfactory to the Administrative Agent:

 

(i)                                     counterparts of this Agreement executed by each of the parties hereto;

 

(ii)                                  Notes of each Class executed by the Borrower, payable to each Lender of such Class that has requested that it receive a Note of such Class, and complying with the terms of Section 2.10.(a) and the Swingline Note executed by the Borrower;

 

(iii)                               the Guaranty executed by the Parent and each of the other Guarantors initially to be a party thereto;

 

(iv)                              an opinion of Latham & Watkins LLP, counsel to the Borrower and the other Loan Parties, addressed to the Administrative Agent and the Lenders and covering such matters as the Administrative Agent may reasonably request;

 

(v)                                 the certificate or articles of incorporation or formation, articles of organization, certificate of limited partnership, declaration of trust or other comparable organizational instrument (if any) of each Loan Party certified as of a recent date by the Secretary of State of the state of formation of such Loan Party;

 

(vi)                              a certificate of good standing (or certificate of similar meaning) with respect to each Loan Party issued as of a recent date by the Secretary of State of the state of formation of each such Loan Party and certificates of qualification to transact business or other comparable certificates issued as of a recent date by each Secretary of State (and any state department of taxation, as applicable) of each state in which such Loan Party is required to be so qualified and where failure to be so qualified could reasonably be expected to have a Material Adverse Effect;

 

(vii)                           a certificate of incumbency signed by the Secretary or Assistant Secretary (or other individual performing similar functions) of each Loan Party with respect to each of the officers of such Loan Party authorized to execute and deliver the Loan Documents to which such Loan Party is a party, and in the case of the Borrower, authorized to execute and deliver on behalf of the Borrower Notices of Revolving Borrowing, Notices of Swingline Borrowing, requests for Letters of Credit, Notices of Conversion, Notices of Continuation and any notice of Term Loan borrowing to be provided under any applicable Term Loan Supplement;

 

(viii)                        copies certified by the Secretary or Assistant Secretary (or other individual performing similar functions) of each Loan Party of (A) the by-laws of such Loan Party, if a corporation, the operating agreement, if a limited liability company, the partnership agreement, if a limited or general partnership, or other comparable document in the case of any other form of legal entity and (B) all corporate, partnership, member or other necessary action taken by such Loan Party to authorize the execution, delivery and performance of the Loan Documents to which it is a party;

 

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(ix)                              a Compliance Certificate calculated on a pro forma basis for the Borrower’s fiscal year ended December 31, 2014;

 

(x)                                 a Disbursement Instruction Agreement effective as of the Agreement Date;

 

(xi)                              evidence that all indebtedness, liabilities or obligations owing by the Loan Parties under the Existing Credit Agreement shall have been paid in full and any Liens securing such indebtedness, liabilities or other obligations have been released;

 

(xii)                           copies of all Material Contracts in existence on the Agreement Date;

 

(xiii)                        evidence that the Fees, if any, then due and payable under Section 3.5., together with all other fees, expenses and reimbursement amounts due and payable to the Administrative Agent, the Lead Arrangers and any of the Lenders, including without limitation, the fees and expenses of counsel to the Administrative Agent, have been paid;

 

(xiv)                       certificates of insurance evidencing the insurance then in effect with respect to the Properties and otherwise in compliance with Section 8.5.;

 

(xv)                          such other documents, agreements and instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably request;

 

(b)                                 there shall not have occurred or become known to the Administrative Agent or any of the Lenders any event, condition, situation or status since the date of the information contained in the financial and business projections, budgets, pro forma data and forecasts concerning the Parent, the Borrower and their respective Subsidiaries delivered to the Administrative Agent and the Lenders prior to the Agreement Date that has had or could reasonably be expected to result in a materially adverse effect on the business, assets, liabilities, condition (financial or otherwise), results of operations or business prospects of the Parent, the Borrower and the Subsidiaries taken as a whole;

 

(c)                                  no litigation, action, suit, investigation or other arbitral, administrative or judicial proceeding shall be pending or threatened which could reasonably be expected to (i) result in a Material Adverse Effect or (ii) restrain or enjoin, impose materially burdensome conditions on, or otherwise materially and adversely affect, the ability of the Parent, the Borrower or any other Loan Party to fulfill its obligations under the Loan Documents to which it is a party;

 

(d)                                 the Parent, the Borrower, the other Loan Parties and the other Subsidiaries shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices as shall be required to consummate the transactions contemplated hereby without the occurrence of any default under, conflict with or violation of (i) any Applicable Law or (ii) any agreement, document or instrument to which any Loan Party is a party or by which any of them or their respective properties is bound;

 

(e)                                  there shall not have occurred or exist any other material disruption of financial or capital markets that could reasonably be expected to materially and adversely affect the transactions contemplated by the Loan Documents; and

 

(f)                                   the Borrower and each other Loan Party shall have provided all information requested by the Administrative Agent and each Lender in order to comply with applicable “know your customer” and anti-money laundering rules and regulations, including without limitation, the Patriot Act.

 

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Section 6.2.  Conditions Precedent to All Loans and Letters of Credit.

 

In addition to satisfaction or waiver of the conditions precedent contained in Section 6.1., the obligations of (i) Lenders to make any Loans and (ii) the Issuing Banks to issue Letters of Credit are each subject to the further conditions precedent that: (a) no Default or Event of Default shall exist as of the date of the making of such Loan or date of issuance of such Letter of Credit or would exist immediately after giving effect thereto, and no violation of the limits described in Section 2.14. would occur after giving effect thereto; (b) the representations and warranties made or deemed made by the Borrower and each other Loan Party in the Loan Documents to which any of them is a party, shall be true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of the date of the making of such Loan or date of issuance of such Letter of Credit with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted hereunder; (c) in the case of the borrowing of Revolving Loans, the Administrative Agent shall have received a timely Notice of Revolving Borrowing, in the case of the borrowing of any Term Loans, the Administrative Agent shall have received a timely notice of any Term Loan borrowing required to be provided in any applicable Term Loan Supplement, in the case of a Swingline Loan, the Swingline Lender shall have received a timely Notice of Swingline Borrowing, and in the case of the issuance of a Letter of Credit, the Issuing Banks and the Administrative Agent shall have received a timely request for the issuance of such Letter of Credit.  Each Credit Event shall constitute a certification by the Borrower to the effect set forth in the preceding sentence (both as of the date of the giving of notice relating to such Credit Event and, unless the Borrower otherwise notifies the Administrative Agent prior to the date of such Credit Event, as of the date of the occurrence of such Credit Event).  In addition, the Borrower shall be deemed to have represented to the Administrative Agent and the Lenders at the time any Loan is made or any Letter of Credit is issued that all conditions to the making of such Loan or issuing of such Letter of Credit contained in this Article VI. have been satisfied.  Unless set forth in writing to the contrary, the making of its initial Loan by a Lender shall constitute a certification by such Lender to the Administrative Agent for the benefit of the Administrative Agent and the Lenders that the conditions precedent for initial Loans set forth in Sections 6.1. and 6.2. that have not previously been waived by the Lenders in accordance with the terms of this Agreement have been satisfied.

 

ARTICLE VII. REPRESENTATIONS AND WARRANTIES

 

Section 7.1.  Representations and Warranties.

 

In order to induce the Administrative Agent and each Lender to enter into this Agreement and to make Loans and, in the case of the Issuing Banks, to issue Letters of Credit, each of the Parent and the Borrower represents and warrants to the Administrative Agent, each Issuing Bank and each Lender as follows:

 

(a)                                 Organization; Power; Qualification.  Each of the Parent, the Borrower, the other Loan Parties and the other Subsidiaries is a corporation, partnership or other legal entity, duly organized or formed, validly existing and in good standing under the jurisdiction of its incorporation or formation, has the power and authority to own or lease its respective properties and to carry on its respective business as now being and hereafter proposed to be conducted and is duly qualified and is in good standing as a foreign corporation, partnership or other legal entity, and authorized to do business, in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization and where the failure to be so qualified or authorized could reasonably be expected to have, in each instance, a Material Adverse Effect.

 

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(b)                                 Ownership Structure.  Part I of Schedule 7.1.(b) is, as of the Agreement Date, a complete and correct list of all Subsidiaries of the Parent setting forth for each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding any Equity Interest in such Subsidiary, (iii) the percentage of ownership of such Subsidiary represented by such Equity Interests and (iv) whether such Subsidiary is a Material Subsidiary, a Significant Subsidiary, an Excluded Subsidiary or a Foreign Subsidiary, as applicable.  As of the Agreement Date, except as disclosed in such Schedule, (A) each of the Parent and its Subsidiaries owns, free and clear of all Liens (other than Permitted Liens of the types described in clause (a) of the definition of the term “Permitted Liens” and in the case of an Excluded Subsidiary, customary Liens on Equity Interests of such Excluded Subsidiary securing Nonrecourse Indebtedness), and has the unencumbered right to vote, all outstanding Equity Interests in each Person shown to be held by it on such Schedule (other than in the case of an Excluded Subsidiary, customary restrictions on the right to vote the Equity Interests of such Excluded Subsidiary relating to Nonrecourse Indebtedness), (B) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (C) there are no outstanding subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders’ or voting trust agreements) for the issuance, sale, registration or voting of, or outstanding securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, any such Person.  As of the Agreement Date, Part II of Schedule 7.1.(b) correctly sets forth all Unconsolidated Affiliates of the Parent, including the correct legal name of such Person, the type of legal entity which each such Person is, and all Equity Interests in such Person held directly or indirectly by the Parent.

 

(c)                                  Authorization of Loan Documents and Borrowings.  The Borrower has the right and power, and has taken all necessary action to authorize it, to borrow and obtain other extensions of credit hereunder.  The Parent, the Borrower and each other Loan Party has the right and power, and has taken all necessary action to authorize it, to execute, deliver and perform each of the Loan Documents to which it is a party in accordance with their respective terms and to consummate the transactions contemplated hereby and thereby.  The Loan Documents to which the Parent, the Borrower or any other Loan Party is a party have been duly executed and delivered by the duly authorized officers of such Person and each is a legal, valid and binding obligation of such Person enforceable against such Person in accordance with its respective terms, except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and the availability of equitable remedies for the enforcement of certain obligations (other than the payment of principal) contained herein or therein and as may be limited by equitable principles generally.

 

(d)                                 Compliance of Loan Documents with Laws.  The execution, delivery and performance of this Agreement and the other Loan Documents to which any Loan Party is a party in accordance with their respective terms and the borrowings and other extensions of credit hereunder do not and will not, by the passage of time, the giving of notice, or both:  (i) require any Governmental Approval or violate any Applicable Law (including all Environmental Laws) relating to the Parent, the Borrower or any other Loan Party; (ii) conflict with, result in a breach of or constitute a default under the organizational documents of any Loan Party, or any material indenture, material agreement or other material instrument to which the Parent, the Borrower or any other Loan Party is a party or by which it or any of its respective properties may be bound; or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any Loan Party other than in favor of the Administrative Agent for its benefit and the benefit of the other Lender Parties.

 

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(e)                                  Compliance with Law; Governmental Approvals.  Each of the Parent, the Borrower, the other Loan Parties and the other Subsidiaries is in compliance with each Governmental Approval and all other Applicable Laws relating to it except for noncompliances which, and Governmental Approvals the failure to possess which, could not, individually or in the aggregate, reasonably be expected to cause a Default or Event of Default or have a Material Adverse Effect.

 

(f)                                   Title to Properties; Liens.  Schedule 7.1.(f) is, as of the Agreement Date, a complete and correct listing of all real estate assets of the Borrower, each other Loan Party and each other Subsidiary, setting forth, for each such Property, the current occupancy status of such Property and whether such Property is a Development Property and, if such Property is a Development Property, the status of completion of such Property.  Schedule 4.1. is, as of the Agreement Date, a complete and correct listing of all Unencumbered Properties.  Each of the Parent, the Borrower, each other Loan Party and each other Subsidiary has good, marketable and legal title to, or a valid leasehold interest in, its respective assets.

 

(g)                                  Existing Indebtedness.  Schedule 7.1.(g) is, as of the Agreement Date, a complete and correct listing of all Indebtedness (including all Guarantees) of each of the Parent, the Borrower, the other Loan Parties and the other Subsidiaries having, in each case, an outstanding principal balance of $10,000,000 or more, and if such Indebtedness is secured by any Lien, a description of all of the property subject to such Lien.  As of the Agreement Date, the outstanding principal amount of Indebtedness of each of the Parent, the Borrower, the other Loan Parties and the other Subsidiaries not set forth on such Schedule does not exceed $25,000,000 in the aggregate.

 

(h)                                 Material Contracts.  Schedule 7.1.(h) is, as of the Agreement Date, a true, correct and complete listing of all Material Contracts.  No event or condition exists which would reasonably be expected to result in any party to a Material Contract taking action to terminate such Material Contract.

 

(i)                                     Litigation.  Except as set forth on Schedule 7.1.(i), there are no actions, suits or proceedings pending (or, to the knowledge of any Loan Party, are there any actions, suits or proceedings threatened) against or in any other way relating adversely to or affecting the Parent, the Borrower, any other Loan Party, any other Subsidiary or any of their respective property in any court or before any arbitrator of any kind or before or by any other Governmental Authority which could reasonably be expected to have a Material Adverse Effect.  There are no known strikes, slow downs, work stoppages or walkouts or other labor disputes in progress or threatened relating to, the Parent, the Borrower, any other Loan Party or any other Subsidiary which could reasonably be expected to have a Material Adverse Effect.

 

(j)                                    Taxes.  All federal, state and other material tax returns of the Parent, the Borrower, each other Loan Party and each other Subsidiary required by Applicable Law to be filed have been duly filed, and all federal, material state and other material taxes, assessments and other governmental charges or levies upon, the Parent, the Borrower, each other Loan Party, each other Subsidiary and their respective properties, income, profits and assets which are due and payable have been paid, except any such nonpayment or non-filing which is at the time permitted under Section 8.6.  As of the Agreement Date, none of the United States federal income tax returns of the Parent, the Borrower, any other Loan Party or any other Subsidiary is under audit.  All charges, accruals and reserves on the books of the Parent, the Borrower, the other Loan Parties and the other Subsidiaries in respect of any taxes or other governmental charges are in accordance with GAAP.

 

(k)                                 Financial Statements.  The Borrower has furnished to each Lender copies of the audited consolidated balance sheet of the Parent and its consolidated Subsidiaries for the fiscal years ended December 31, 2013 and December 31, 2014, and the related audited consolidated statements of operations, shareholders’ equity and cash flow for the fiscal years ended on such dates, with the opinion

 

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thereon of Ernst & Young LLP.  Such financial statements (including in each case related schedules and notes) are complete and correct in all material respects and present fairly, in accordance with GAAP consistently applied throughout the periods involved, the consolidated financial position of the Parent and its consolidated Subsidiaries as at their respective dates and the results of operations and the cash flow for such periods.  Neither the Parent nor any of its Subsidiaries has on the Agreement Date any material contingent liabilities, liabilities, liabilities for taxes, unusual or long-term commitments or unrealized or forward anticipated losses from any unfavorable commitments that would be required to be set forth in its financial statements or notes thereto, except as referred to or reflected or provided for in said financial statements.

 

(l)                                     No Material Adverse Change.  Since December 31, 2014, there has been no event, change, circumstance or occurrence that could reasonably be expected to have a Material Adverse Effect.  Each of the Parent, the Borrower, the other Loan Parties and the other Subsidiaries is Solvent.

 

(m)                             ERISA.

 

(i)                                     Except as could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, each Benefit Arrangement is in compliance with the applicable provisions of ERISA, the Internal Revenue Code and other Applicable Laws.  Except with respect to Multiemployer Plans, each Qualified Plan has received a favorable determination from the Internal Revenue Service or may rely upon a favorable opinion letter issued by the Internal Revenue Service with respect to a prototype plan, or a timely application for such a letter is currently being processed by the Internal Revenue Service with respect thereto.  To the knowledge of the Borrower, nothing has occurred which would cause the loss of its reliance on each Qualified Plan’s favorable determination letter or opinion letter.

 

(ii)                                  With respect to any Benefit Arrangement that is a retiree welfare benefit arrangement, all amounts have been accrued on the applicable ERISA Group’s financial statements in accordance with FASB ASC 715.  The aggregate funding contributions payable by the Borrower, the other Loan Parties and the other Subsidiaries as a result of the “benefit obligation” of all Plans exceeding the “fair market value of plan assets” for all Plans which are, or are reasonably expected to be, in “at risk” status (within the meaning of Section 430 of the Internal Revenue Code or Section 303 of ERISA), all as determined, and with such terms defined, in accordance with FASB ASC 715, could not reasonably be expected to exceed $10,000,000 in the aggregate during any fiscal year of the Borrower.

 

(iii)                               Except as could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect: (i) no ERISA Event has occurred or is reasonably expected to occur; (ii) there are no pending, or to the knowledge of the Borrower, threatened, claims, actions or lawsuits or other action by any Governmental Authority, plan participant or beneficiary with respect to a Benefit Arrangement; (iii) there are no violations of the fiduciary responsibility rules with respect to any Benefit Arrangement; and (iv) no member of the ERISA Group has engaged in a non-exempt “prohibited transaction,” as defined in Section 406 of ERISA and Section 4975 of the Internal Revenue Code, in connection with any Plan, that would subject the Borrower, any other Loan Party or any other Subsidiary to a tax on prohibited transactions imposed by Section 502(i) of ERISA or Section 4975 of the Internal Revenue Code.

 

(n)                                 Absence of Default.  None of the Parent, the Borrower, any of the other Loan Parties or any of the other Subsidiaries is in default under its certificate or articles of incorporation or formation, bylaws, partnership agreement or other similar organizational documents, and no event has occurred, which has not been remedied, cured or waived:  (i) which constitutes a Default or an Event of Default; or

 

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(ii) which constitutes, or which with the passage of time, the giving of notice, or both, would constitute, a default or event of default by, the Parent, the Borrower, any other Loan Party or any other Subsidiary under any agreement (other than this Agreement) or judgment, decree or order to which any such Person is a party or by which any such Person or any of its respective properties may be bound where such default or event of default could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(o)                                 Environmental Laws.  In the ordinary course of business and from time to time each of the Parent, the Borrower, each other Loan Party and each other Subsidiary conducts reviews of the effect of Environmental Laws on its respective business, operations and properties, including without limitation, its respective Properties, in the course of which the Parent, the Borrower, such other Loan Party or such other Subsidiary identifies and evaluates associated actual and potential liabilities and costs (including, without limitation, determining whether any capital or operating expenditures are required for clean-up or closure of properties presently or previously owned, determining whether any capital or operating expenditures are required to achieve or maintain compliance in all material respects with Environmental Laws or required as a condition of any Governmental Approval, any contract, or any related constraints on operating activities, determining whether any costs or liabilities exist in connection with on-site or off-site treatment, storage, handling and disposal of wastes or Hazardous Materials, and determining whether any actual or potential liabilities to third parties, including employees, and any related costs and expenses exist).  Each of the Parent, the Borrower, each other Loan Party and each other Subsidiary: (i) is in compliance with all Environmental Laws applicable to its business, operations and the Properties, (ii) has obtained all Governmental Approvals which are required under Environmental Laws, and each such Governmental Approval is in full force and effect, and (iii) is in compliance with all terms and conditions of such Governmental Approvals, where with respect to each of the immediately preceding clauses (i) through (iii) the failure to obtain or to comply with could reasonably be expected to have a Material Adverse Effect.  Except for any of the following matters that could not reasonably be expected to have a Material Adverse Effect, no Loan Party has any knowledge of, or has received notice of, any past, present, or pending releases, events, conditions, circumstances, activities, practices, incidents, facts, occurrences, actions, or plans that, with respect to any Loan Party or any other Subsidiary, their respective businesses, operations or with respect to the Properties, may:  (x) cause or contribute to an actual or alleged violation of or noncompliance with Environmental Laws, (y) cause or contribute to any other potential common-law or legal claim or other liability, or (z) cause any of the Properties to become subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law or require the filing or recording of any notice, approval or disclosure document under any Environmental Law and, with respect to the immediately preceding clauses (x) through (z) is based on or related to the on-site or off-site manufacture, generation, processing, distribution, use, treatment, storage, disposal, transport, removal, clean up or handling, or the emission, discharge, release or threatened release of any wastes or Hazardous Material, or any other requirement under Environmental Law.  There is no civil, criminal, or administrative action, suit, demand, claim, hearing, notice, or demand letter, mandate, order, lien, request, investigation, or proceeding pending or, to the Parent’s knowledge after due inquiry, threatened, against the Parent, the Borrower, any other Loan Party or any other Subsidiary relating in any way to Environmental Laws which, reasonably could be expected to have a Material Adverse Effect.  None of the Properties is listed on or proposed for listing on the National Priority List promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and its implementing regulations, or any state or local priority list promulgated pursuant to any analogous state or local law.  To the Parent’s knowledge, no Hazardous Materials generated at or transported from the Properties are or have been transported to, or disposed of at, any location that is listed or proposed for listing on the National Priority List or any analogous state or local priority list, or any other location that is or has been the subject of a clean-up, removal or remedial action pursuant to any Environmental Law, except to the extent that such transportation or disposal could not reasonably be expected to result in a Material Adverse Effect.

 

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(p)                                 Investment Company.  None of the Parent, the Borrower, any other Loan Party or any other Subsidiary is (i) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, or (ii) subject to any other Applicable Law which purports to regulate or restrict its ability to borrow money or obtain other extensions of credit or to consummate the transactions contemplated by this Agreement or to perform its obligations under any Loan Document to which it is a party.

 

(q)                                 Margin Stock.  None of the Parent, the Borrower, any other Loan Party or any other Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System.

 

(r)                                    Affiliate Transactions.  Except as permitted by Section 10.9. or as otherwise set forth on Schedule 7.1.(r), none of the Parent, the Borrower, any other Loan Party or any other Subsidiary is a party to or bound by any agreement or arrangement (whether oral or written) with any Affiliate.

 

(s)                                   Intellectual Property.  Each of the Parent, the Borrower, the other Loan Parties and the other Subsidiaries owns or has the right to use, under valid license agreements or otherwise, all patents, licenses, franchises, trademarks, trademark rights, service marks, service mark rights,  trade names, trade name rights, trade secrets and copyrights (collectively, “Intellectual Property”) necessary to the conduct of its businesses, without known conflict with any patent, license, franchise, trademark, trademark right, service mark, service mark right, trade secret, trade name, copyright, or other proprietary right of any other Person.  All such Intellectual Property is fully protected and/or duly and properly registered, filed or issued in the appropriate office and jurisdictions for such registrations, filing or issuances.  No material claim has been asserted by any Person with respect to the use of any such Intellectual Property by the Parent, the Borrower, any other Loan Party or any other Subsidiary, or challenging or questioning the validity or effectiveness of any such Intellectual Property.  The use of such Intellectual Property by the Parent, the Borrower, the other Loan Parties and the other Subsidiaries does not infringe on the rights of any Person, subject to such claims and infringements as do not, in the aggregate, give rise to any liabilities on the part of the Parent, the Borrower, any other Loan Party or any other Subsidiary that could reasonably be expected to have a Material Adverse Effect.

 

(t)                                    Business.  As of the Agreement Date, the Parent, the Borrower, the other Loan Parties and the other Subsidiaries are engaged in the business of development, construction, acquisition, ownership and operation of hotel properties, together with other business activities incidental thereto.

 

(u)                                 Broker’s Fees.  No broker’s or finder’s fee, commission or similar compensation will be payable with respect to the transactions contemplated hereby.  No other similar fees or commissions will be payable by any Loan Party for any other services rendered to the Parent, the Borrower, any other Loan Party or any other Subsidiary ancillary to the transactions contemplated hereby.

 

(v)                                 Accuracy and Completeness of Information.  All written information, reports and other papers and data (other than financial projections and other forward looking statements) furnished to the Administrative Agent or any Lender by, on behalf of, or at the direction of, the Parent, the Borrower, any other Loan Party or any other Subsidiary were, at the time the same were so furnished and under the circumstances so furnished, complete and correct in all material respects, to the extent necessary to give the recipient a true and accurate knowledge of the subject matter, or, in the case of financial statements, present fairly, in accordance with GAAP consistently applied throughout the periods involved, the financial position of the Persons involved as at the date thereof and the results of operations for such periods (subject, as to interim statements, to changes resulting from normal year end audit adjustments

 

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and absence of full footnote disclosure).  All financial projections and other forward looking statements prepared by or on behalf of the Parent, the Borrower, any other Loan Party or any other Subsidiary that have been or may hereafter be made available to the Administrative Agent or any Lender were or will be prepared in good faith based on reasonable assumptions.  As of the Agreement Date, no fact is known to any Loan Party which has had, or may in the future have (so far as any Loan Party can reasonably foresee), a Material Adverse Effect which has not been set forth in the financial statements referred to in Section 7.1.(k) or in such information, reports or other papers or data or otherwise disclosed in writing to the Administrative Agent and the Lenders.  No document furnished or written statement made to the Administrative Agent or any Lender in connection with the negotiation, preparation or execution of, or pursuant to, this Agreement or any of the other Loan Documents contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary in order to make the statements contained therein not misleading.

 

(w)                               Not Plan Assets; No Prohibited Transactions.  None of the assets of the Parent, the Borrower, any other Loan Party or any other Subsidiary constitutes “plan assets” within the meaning of ERISA, the Internal Revenue Code and the respective regulations promulgated thereunder.  Assuming that no Lender funds any amount payable by it hereunder with “plan assets,” as that term is defined in 29 C.F.R. 2510.3-101, the execution, delivery and performance of this Agreement and the other Loan Documents, and the extensions of credit and repayment of amounts hereunder, do not and will not constitute “prohibited transactions” under ERISA or the Internal Revenue Code.

 

(x)                                 OFAC; Anti-Corruption Laws; Patriot Act.  None of the Parent, the Borrower, any of the other Loan Parties or any of the other Subsidiaries, or, to the actual knowledge of the Parent, the Borrower or any Subsidiary, any of their respective Affiliates, directors, officers or employees: (i) is a person or group named on the list of Specially Designated Nationals or Blocked Persons maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) available at http://www.treas.gov/offices/enforcement/ofac/index.shtml, or as otherwise published from time to time, or any other Sanctions-related list of designated Persons maintained by the U.S. Department of State, the United Nations Security Council, the European Union or any European Union member state; (ii) is (A) an agency of the government of a country, (B) an organization controlled by a country, or (C) a person or group operating, organized or 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/index.shtml, or as otherwise published from time to time, or any other Sanctions, as any such program may be applicable to such agency, organization or person; or (iii) derives any of its assets or operating income from investments in or transactions with any such country, agency, organization or person; and none of the proceeds from any Loan, and no Letter of Credit, will be used to finance any operations, investments or activities in, or make any payments to, any such country, agency, organization, or person.  The Parent, Borrower, their Subsidiaries, and, to the actual knowledge of the Parent and the Borrower their respective officers, employees, directors and agents, are in compliance in all material respects with Anti-Corruption Laws and applicable Sanctions.  None of the making of the Loans, the use of the proceeds thereof or the issuance of Letters of Credit will violate in any material respect the Patriot Act, the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 C.F.R. Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto or successor statute thereto.  The Parent, the Borrower and their respective Subsidiaries are in compliance in all material respects with the Patriot Act.

 

(y)                                 REIT Status.  The Parent qualifies as, and has elected to be treated as, a REIT and is in compliance with all requirements and conditions imposed under the Internal Revenue Code to allow the Parent to maintain its status as a REIT.

 

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(z)                                  Unencumbered Properties.  Except for any Property that has been approved as an Unencumbered Property pursuant to Section 4.1.(c) or otherwise approved by the Requisite Lenders in writing, each Property included in calculations of the Unencumbered Asset Value satisfies all of the requirements contained in the definition of “Unencumbered Property”.

 

Section 7.2.  Survival of Representations and Warranties, Etc.

 

All statements contained in any certificate, financial statement or other instrument delivered by or on behalf of the Parent, the Borrower, any other Loan Party or any other Subsidiary to the Administrative Agent or any Lender pursuant to or in connection with this Agreement or any of the other Loan Documents (including, but not limited to, any such statement made in or in connection with any amendment thereto or any statement contained in any certificate, financial statement or other instrument delivered by or on behalf of any Loan Party prior to the Agreement Date and delivered to the Administrative Agent or any Lender in connection with the underwriting or closing the transactions contemplated hereby) shall constitute representations and warranties made by the Parent and the Borrower under this Agreement.  All representations and warranties made under this Agreement and the other Loan Documents shall be deemed to be made at and as of the Agreement Date, the Effective Date, the date on which any extension of the Termination Date for a Class of Loans is effectuated pursuant to Section 2.12., the date on which any increase of Commitments is effectuated pursuant to Section 2.15. and at and as of the date of the occurrence of each Credit Event, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted hereunder.  All such representations and warranties shall survive the effectiveness of this Agreement, the execution and delivery of the Loan Documents and the making of the Loans and the issuance of the Letters of Credit.

 

ARTICLE VIII. AFFIRMATIVE COVENANTS

 

For so long as this Agreement is in effect, the Parent and the Borrower shall comply with the following covenants:

 

Section 8.1.  Preservation of Existence and Similar Matters.

 

Except as otherwise permitted under Section 10.5., the Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, (i) preserve and maintain its respective existence in the jurisdiction of its incorporation or formation, (ii) preserve and maintain its respective rights, franchises, licenses and privileges in the jurisdiction of its incorporation or formation, except where the failure to preserve and maintain such rights, franchises, licenses and privileges could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and (iii) qualify and remain qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification and authorization, except where the failure to be so authorized and qualified could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

Section 8.2.  Compliance with Applicable Law.

 

The Parent and the Borrower shall comply, and shall cause each other Loan Party and each other Subsidiary to comply, and the Parent and the Borrower shall use, and shall cause each other Loan Party and each other Subsidiary to use, commercially reasonable efforts to cause all other Persons occupying, using or present on the Properties to comply, with all Applicable Law (including without limitation Anti-Corruption Laws and Sanctions), including the obtaining of all Governmental Approvals, the failure with which to comply could reasonably be expected to have a Material Adverse Effect.

 

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Section 8.3.  Maintenance of Property.

 

In addition to the requirements of any of the other Loan Documents, the Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, protect and preserve all of its respective material properties, including, but not limited to, all Intellectual Property necessary to the conduct of its respective business, and maintain in good repair, working order and condition all tangible properties, ordinary wear and tear excepted.

 

Section 8.4.  Conduct of Business.

 

The Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, carry on its respective businesses as described in Section 7.1.(t).

 

Section 8.5.  Insurance.

 

In addition to the requirements of any of the other Loan Documents, the Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, maintain insurance (on a replacement cost basis) with financially sound and reputable insurance companies against such risks (including without limitation, terrorism as applicable) and in such amounts as is customarily maintained by Persons engaged in similar businesses or as may be required by Applicable Law. The Borrower shall from time to time deliver to the Administrative Agent upon request a detailed list, together with copies of certificates of insurance evidencing the insurance then in effect, stating the names of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby.  Such insurance shall, in any event, include terrorism coverage to the extent prudent owners of properties similar in nature and location generally maintain such insurance.

 

Section 8.6.  Payment of Taxes and Claims.

 

The Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, pay and discharge when due (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any properties belonging to it, and (b) all lawful claims of materialmen, mechanics, carriers, warehousemen and landlords for labor, materials, supplies and rentals which, if unpaid, might become a Lien on any properties of such Person; provided, however, that this Section shall not require the payment or discharge of (i) any such tax, assessment, charge, levy or claim which is being contested in good faith by appropriate proceedings which operate to suspend the collection thereof and for which adequate reserves have been established on the books of such Person in accordance with GAAP, or (ii) any immaterial tax or claim so long as no material Property of the Parent, the Borrower, any other Loan Party or any other Subsidiary is at the immediate risk of being seized, levied or forfeited.

 

Section 8.7.  Books and Records; Inspections.

 

The Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, keep proper books of record and account in entries that are full, true and correct in all material respects shall be made of all dealings and transactions in relation to its business and activities.  The Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, permit representatives of the Administrative Agent or any Lender to visit and inspect any of their

 

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respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants (in the presence of an officer of the Parent or the Borrower if an Event of Default does not then exist), all at such reasonable times during business hours and as often as may reasonably be requested and so long as no Event of Default exists, with reasonable prior notice.  The Borrower shall be obligated to reimburse the Administrative Agent and the Lenders for their costs and expenses incurred in connection with the exercise of their rights under this Section only if such exercise occurs while a Default or Event of Default exists.  Each of the Parent and the Borrower hereby authorizes and instructs its accountants to discuss the financial affairs of the Borrower, any other Loan Party or any other Subsidiary with the Administrative Agent or any Lender.

 

Section 8.8.  Environmental Matters.

 

The Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, comply with all Environmental Laws the failure with which to comply could reasonably be expected to have a Material Adverse Effect.  The Parent and the Borrower shall comply, and shall cause each other Loan Party and each other Subsidiary to comply, and the Parent and the Borrower shall use, and shall cause each other Loan Party and each other Subsidiary to use, commercially reasonable efforts to cause all other Persons occupying, using or present on the Properties to comply, with all Environmental Laws in all material respects.  The Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, promptly take all actions and pay or arrange to pay all costs necessary for it and for the Properties to comply in all material respects with all Environmental Laws and all Governmental Approvals, including, to the extent required to comply in all material respects with all Environmental Laws, actions to remove and dispose of all Hazardous Materials and to clean up the Properties as required under Environmental Laws.  The Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, promptly take all actions necessary to prevent the imposition of any Liens on any of their respective properties arising out of or related to any Environmental Laws (other than a Lien which consists solely of restrictions on the use of property that do not materially detract from the value of such property or impair the intended use or profitable operation thereof in the business of the Parent, the Borrower and their Subsidiaries).  Nothing in this Section shall impose any obligation or liability whatsoever on the Administrative Agent or any Lender.

 

Section 8.9.  Further Assurances.

 

At the Borrower’s cost and expense and upon request of the Administrative Agent, the Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, duly execute and deliver or cause to be duly executed and delivered, to the Administrative Agent such further instruments, documents and certificates, and do and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Administrative Agent to carry out more effectively the provisions of this Agreement and the other Loan Documents.

 

Section 8.10.  Material Contracts.

 

The Parent and the Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, duly and punctually perform and comply with any and all representations, warranties, covenants and agreements expressed as binding upon any such Person under any Material Contract which if not performed or complied with would reasonably be expected to result in any party to a Material Contract taking action to terminate such Material Contract.

 

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Section 8.11.  REIT Status.

 

The Parent shall maintain its status as, and election to be treated as, a REIT under the Internal Revenue Code.

 

Section 8.12.  Exchange Listing.

 

The Parent shall maintain at least one class of common shares of the Parent having trading privileges on the New York Stock Exchange or NYSE Amex Equities or which is subject to price quotations on The NASDAQ Stock Market’s National Market System.

 

Section 8.13.  Guarantors.

 

(a)                                 Within 5 Business Days of any Person becoming a Material Subsidiary (other than an Excluded Subsidiary or a Foreign Subsidiary) after the Agreement Date, the Borrower shall deliver to the Administrative Agent each of the following in form and substance reasonably satisfactory to the Administrative Agent: (i) an Accession Agreement executed by such Subsidiary and (ii) the items that would have been delivered under subsections (iv) through (viii) and (xv) of Section 6.1.(a) and under Section 6.1.(e) if such Subsidiary had been a Material Subsidiary on the Agreement Date; provided, however, promptly (and in any event within 5 Business Days) upon any Excluded Subsidiary that is a Material Subsidiary ceasing to be subject to the restriction which prevented it from becoming a Guarantor on the Effective Date or delivering an Accession Agreement pursuant to this Section, as the case may be, such Subsidiary shall comply with the provisions of this Section.

 

(b)                                 The Borrower may request in writing that the Administrative Agent release, and upon receipt of such request the Administrative Agent shall release, a Guarantor (other than the Parent) from the Guaranty so long as: (i) such Guarantor owns no Unencumbered Property, nor any direct or indirect equity interest in any Subsidiary that owns an Unencumbered Property; (ii) such Guarantor is not otherwise required to be a party to the Guaranty under the immediately preceding subsection (a); (iii) no Default or Event of Default shall then be in existence or would occur as a result of such release, including without limitation, a Default or Event of Default resulting from a violation of any of the covenants contained in Section 10.1.; (iv) the representations and warranties made or deemed made by the Borrower and each other Loan Party in the Loan Documents to which any of them is a party, shall be true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of the date of such release with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted under the Loan Documents; and (v) the Administrative Agent shall have received such written request at least 10 Business Days (or such shorter period as may be acceptable to the Administrative Agent in its sole discretion) prior to the requested date of release.  Delivery by the Borrower to the Administrative Agent of any such request shall constitute a representation by the Borrower that the matters set forth in the preceding sentence (both as of the date of the giving of such request and as of the date of the effectiveness of such request) are true and correct with respect to such request.

 

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ARTICLE IX. INFORMATION

 

For so long as this Agreement is in effect, the Borrower shall furnish to the Administrative Agent for distribution to each of the Lenders:

 

Section 9.1.  Quarterly Financial Statements.

 

As soon as available and in any event within 5 days after the same is required to be filed with the SEC (but in no event later than 45 days after the end of each of the first, second and third fiscal quarters of the Parent), the unaudited consolidated balance sheet of the Parent and its Subsidiaries as at the end of such period and the related unaudited consolidated statements of income, equity and cash flows of the Parent and its Subsidiaries for such period, setting forth in each case in comparative form the figures as of the end of and for the corresponding periods of the previous fiscal year, all of which shall be certified by the chief financial officer of the Parent, in his or her opinion, to present fairly, in accordance with GAAP and in all material respects, the consolidated financial position of the Parent and its Subsidiaries as at the date thereof and the results of operations for such period (subject to normal year-end audit adjustments and absence of full footnote disclosure).

 

Section 9.2.  Year-End Statements.

 

As soon as available and in any event within 5 days after the same is required to be filed with the SEC (but in no event later than 120 days after the end of each fiscal year of the Parent), the audited consolidated balance sheet of the Parent and its Subsidiaries as at the end of such fiscal year and the related audited consolidated statements of income, equity and cash flows of the Parent and its Subsidiaries for such fiscal year, setting forth in comparative form the figures as at the end of and for the previous fiscal year, all of which shall be (a) certified by the chief financial officer of the Parent, in his or her opinion, to present fairly, in accordance with GAAP and in all material respects, the financial position of the Parent and its Subsidiaries as at the date thereof and the result of operations for such period and (b) accompanied by the report thereon of Ernst & Young LLP or any other independent certified public accountants of recognized national standing acceptable to the Administrative Agent, whose report shall not be subject to (i) any “going concern” or like qualification or exception or (ii) any qualification or exception as to the scope of such audit.

 

Section 9.3.  Compliance Certificate.

 

At the time the financial statements are furnished pursuant to Sections 9.1. and 9.2., a certificate substantially in the form of Exhibit K (a “Compliance Certificate”) executed on behalf of the Parent by the chief financial officer or chief accounting officer of the Parent in his or her capacity as such officer and not in any individual capacity (a) setting forth in reasonable detail as of the end of such fiscal quarter or fiscal year, as the case may be, the calculations required to establish whether the Parent and the Borrower, as applicable, were in compliance with the covenants contained in Section 10.1. and (b) stating that, to his or her knowledge, after due inquiry, no Default or Event of Default exists, or, if such is not the case, specifying such Default or Event of Default and its nature, when it occurred and the steps being taken by the Borrower with respect to such event, condition or failure.  Together with the delivery of each Compliance Certificate, the Borrower shall deliver (A) a list of all Persons that have become a Material Subsidiary or a Significant Subsidiary since the date of the Compliance Certificate most recently delivered hereunder and (B) a report of newly acquired Properties, including their Net Operating Income for the period of four consecutive fiscal quarters most recently ending, purchase price, and principal amount of the mortgage debt as of the date of such Compliance Certificate, if any, since the date of the Compliance Certificate most recently delivered hereunder.

 

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Section 9.4.  Other Information.

 

(a)                                 Promptly, and in any event within 5 Business Days, upon receipt thereof, copies of all reports, if any, submitted to the Parent or its Board of Directors by its independent public accountants including, without limitation, any management report;

 

(b)                                 Within 5 Business Days of the filing thereof, copies of all registration statements (excluding the exhibits thereto (unless requested by the Administrative Agent) and any registration statements on Form S-8 or its equivalent), reports on Forms 10-K and 10-Q (or their equivalents) and all other periodic reports which any Loan Party or any other Subsidiary shall file with the SEC or any national securities exchange.

 

(c)                                  Promptly, and in any event within 5 Business Days, upon the mailing thereof to the shareholders of the Parent generally, copies of all financial statements, reports and proxy statements so mailed and promptly upon the issuance thereof copies of all press releases issued by the Parent, any Subsidiary or any other Loan Party;

 

(d)                                 Within 45 days after the end of each fiscal quarter of the Borrower, an operating summary with respect to each Unencumbered Property, including without limitation, a quarterly and year-to-date statement of Net Operating Income;

 

(e)                                  No later than 90 days after the beginning of each fiscal year of the Parent, (i) projected sources and uses of cash statements, balance sheets, income statements, and EBITDA, of the Parent, the Borrower and the other Subsidiaries on a consolidated and annual basis for the next succeeding fiscal year and, to the extent available, for the next three succeeding fiscal years, all itemized in reasonable detail; (ii) operating statements for the prior year, a property budget for the then current year and planned capital expenditure budget on both an individual and consolidated basis for each Property of the Parent, the Borrower and each of the other Subsidiaries and (iii) the most current Smith Travel Research STAR Report available, which will compare the individual Unencumbered Properties to the primary competitive set.  The foregoing shall be accompanied by pro forma calculations, together with detailed assumptions, required to establish whether or not the Parent and the Borrower, as applicable, will be in compliance with the covenants contained in Section 10.1. at the end of each fiscal quarter of the next succeeding fiscal year;

 

(f)                                   To the extent the Parent, the Borrower, any other Loan Party or any other Subsidiary is aware of the same, prompt notice of any matter that has had, or which could reasonably be expected to have, a Material Adverse Effect, including without limitation the Parent, the Borrower, any other Loan Party or any other Subsidiary actually becoming aware of any ERISA Event or any material litigation, arbitration or governmental investigation or proceeding instituted or threatened in writing against any Loan Party or Unencumbered Property;

 

(g)                                  A copy of any amendment to the certificate or articles of incorporation or formation, bylaws, operating agreement, partnership agreement or other similar organizational documents of the Parent, the Borrower or any other Loan Party within 5 Business Days after the effectiveness thereof;

 

(h)                                 Prompt notice of any change in the senior management of the Parent or the Borrower;

 

(i)                                     Prompt notice of the occurrence of any Default or Event of Default or any event which constitutes or which with the passage of time, the giving of notice, or otherwise, would constitute a default or event of default by the Parent, the Borrower, any other Loan Party or any other Subsidiary under any Material Contract;

 

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(j)                                    Prompt notice of any Person becoming a Material Subsidiary or a Significant Subsidiary;

 

(k)                                 [reserved];

 

(l)                                     Promptly upon the request of the Administrative Agent, evidence of the Parent’s calculation of the Ownership Share with respect to a Subsidiary or an Unconsolidated Affiliate, such evidence to be in form and detail reasonably satisfactory to the Administrative Agent;

 

(m)                             Promptly, upon each request, information identifying the Parent and the Borrower as a Lender may request in order to comply with applicable “know your customer” and anti-money laundering rules and regulations, including without limitation, the Patriot Act; and

 

(n)                                 From time to time and promptly upon each request, such data, certificates, reports, statements, documents or further information regarding any Property or the business, assets, liabilities, financial condition, results of operations or business prospects of the Parent, the Borrower, any other Loan Party or any other Subsidiary as the Administrative Agent or any Lender may reasonably request. Subject to the requirements of Section 9.5.(a), to the extent any notices, documents or other items to be delivered pursuant to this Section 9.4. are included in materials otherwise filed with the SEC, the filing of such materials with the SEC shall satisfy the notice and/or delivery requirements under this Section 9.4.

 

Section 9.5.  Electronic Delivery of Certain Information.

 

(a)                                 Documents required to be delivered pursuant to the Loan Documents (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered by electronic communication and delivery, including, the Internet, e-mail or intranet websites to which the Administrative Agent and each Lender have access (including a commercial, third-party website or a website sponsored or hosted by the Administrative Agent or the Borrower) provided that the foregoing shall not apply to (i) notices to any Lender (or the Issuing Banks) pursuant to Article II. and (ii) any Lender that has notified the Administrative Agent and the Borrower that it cannot or does not want to receive electronic communications.  The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic delivery pursuant to procedures approved by it for all or particular notices or communications.  Documents or notices delivered electronically shall be deemed to have been delivered 24 hours after the date and time on which the Administrative Agent or the Borrower posts such documents or the documents become available on a commercial website and the Administrative Agent or Borrower notifies each Lender of said posting and provides a link thereto provided if such notice or other communication is not sent or posted during the normal business hours of the recipient, said posting date and time shall be deemed to have commenced as of 11:00 a.m. Central time on the opening of business on the next business day for the recipient.  Notwithstanding anything contained herein, the Borrower shall deliver paper copies of any documents to the Administrative Agent or to any Lender that requests such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender.  The Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents delivered electronically, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery.  Each Lender shall be solely responsible for requesting delivery to it of paper copies and maintaining its paper or electronic documents.

 

(b)                                 Documents required to be delivered pursuant to Article II. may be delivered electronically to a website provided for such purpose by the Administrative Agent pursuant to the procedures provided to the Borrower by the Administrative Agent.

 

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Section 9.6.  Public/Private Information.

 

The Borrower shall cooperate with the Administrative Agent in connection with the publication of certain materials and/or information provided by or on behalf of the Borrower.  Documents required to be delivered pursuant to the Loan Documents shall be delivered by or on behalf of the Borrower to the Administrative Agent and the Lenders (collectively, “Informational Materials”) pursuant to this Article and the Borrower shall designate Informational Materials (a) that are either available to the public or not material with respect to the Borrower and its Subsidiaries or any of their respective securities for purposes of United States federal and state securities laws, as “Public Information” and (b) that are not Public Information as “Private Information”; provided that any Informational Materials that are not designated as “Public Information” or “Private Information” shall be considered to be “Private Information”.

 

Section 9.7.  USA Patriot Act Notice; Compliance.

 

The Patriot Act and federal regulations issued with respect thereto require all financial institutions to obtain, verify and record certain information that identifies individuals or business entities which open an “account” with such financial institution.  Consequently, a Lender (for itself and/or as agent for all Lenders hereunder) may from time-to-time request, and the Parent and the Borrower shall, and shall cause the other Loan Parties to, provide promptly upon any such request to such Lender, such Loan Party’s name, address, tax identification number and/or such other identification information as shall be necessary for such Lender to comply with federal law.  An “account” for this purpose may include, without limitation, a deposit account, cash management service, a transaction or asset account, a credit account, a loan or other extension of credit, and/or other financial services product.

 

Section 9.8.  Use of Proceeds.

 

The Borrower will use the proceeds of Loans or any Letter of Credit only for general corporate purposes, including (a) to finance acquisitions otherwise permitted under this Agreement; (b) to finance capital expenditures and the repayment of Indebtedness of the Borrower and its Subsidiaries; (c) to provide for the general working capital needs of the Borrower and its Subsidiaries, (d) the payment of fees and expenses in connection herewith and (e) Restricted Payments to the extent permitted under this Agreement.

 

ARTICLE X. NEGATIVE COVENANTS

 

For so long as this Agreement is in effect, the Parent and the Borrower shall comply with the following covenants:

 

Section 10.1.  Financial Covenants.

 

(a)                                 Maximum Leverage Ratio.  The Parent shall not permit the Leverage Ratio to exceed 6.50 to 1.00 at any time; provided, however, that the Parent shall have the option, exercisable one time, to elect that the Leverage Ratio may exceed 6.50 to 1.00 for a period (such period, the “Surge Period”) of one or two consecutive fiscal quarters commencing with the fiscal quarter during which the Borrower delivers the notice referred to below so long as (i) the Borrower has delivered a written notice to the Administrative Agent that the Borrower is exercising its option under this subsection (a) and (ii) the Leverage Ratio does not exceed 7.00 to 1.00 at any time during the Surge Period.

 

(b)                                 Minimum Fixed Charge Coverage Ratio.  The Parent shall not permit the ratio of (i) Adjusted EBITDA for the period of four consecutive fiscal quarters most recently ended to (ii) Fixed Charges for such period to be less than 1.50 to 1.00 as of the last day of such period.

 

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(c)                                  Minimum Tangible Net Worth.  The Parent shall not permit Tangible Net Worth at any time to be less than (i) $2,352,011,250 plus (ii) 75% of the Net Proceeds of all Equity Issuances effected at any time after December 31, 2014 by the Parent, the Borrower or any other Subsidiary to any Person other than the Parent, the Borrower or any other Subsidiary.

 

(d)                                 Maximum Unencumbered Leverage Ratio.  The Parent shall not permit the ratio of (i) Unsecured Indebtedness of the Parent and its Subsidiaries determined on a consolidated basis to (ii) Unencumbered Asset Value to exceed 0.60 to 1.00 at any time.

 

(e)                                  Minimum Unencumbered Implied Debt Service Coverage Ratio.  The Parent shall not permit the ratio of (i) Adjusted NOI from Unencumbered Properties to (ii) Implied Debt Service for all Unsecured Indebtedness of Parent and its Subsidiaries to be less than 1.20 to 1.00 at any time.

 

(f)                                   Minimum Unencumbered Property Requirements.  The Parent shall not permit the number of Unencumbered Properties to be less than 7 Properties or the Unencumbered Asset Value to be less than $500,000,000.

 

(g)                                  Maximum Secured Indebtedness Ratio.  The Parent shall not permit the ratio of (i) Secured Indebtedness of the Parent and its Subsidiaries to (ii) Total Asset Value to exceed (x) 0.50 to 1.00 at any time on or before March 30, 2016 or (y) 0.45 to 1.00 at any time on or after March 31, 2016.

 

(h)                                 Maximum Secured Recourse Indebtedness Ratio.  The Parent shall not permit the ratio of (i) Secured Recourse Indebtedness of the Parent and its Subsidiaries to (ii) Total Asset Value to exceed 0.10 to 1.00 at any time.

 

(i)                                     Minimum Adjusted Total Asset Value.  The Parent and the Borrower shall not permit the Adjusted Total Asset Value attributable to assets directly owned by the Parent, the Borrower and the other Guarantors to be less than 90% of Adjusted Total Asset Value at any time.

 

(j)                                    Permitted Investments. The Parent and the Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary to, make an Investment in or otherwise own the following items which would cause the aggregate value of such holdings of such Persons to exceed the following percentages of Total Asset Value at any time:

 

(i)                                     Investments in Unconsolidated Affiliates and other Persons that are not Subsidiaries, such that the aggregate GAAP book value of such interests calculated on the basis of the lower of cost or market, exceeds 10.0% of Total Asset Value;

 

(ii)                                  Development Properties such that the aggregate GAAP book value thereof exceeds 10.0% of Total Asset Value;

 

(iii)                               Mezzanine loans and Mortgage Receivables, such that the aggregate book value thereof exceeds 15.0% of Total Asset Value; and

 

(iv)                              Unimproved Land (which shall not include any Development Property) such that the aggregate GAAP book value thereof exceeds 5.0% of Total Asset Value.

 

In addition to the foregoing limitations, the aggregate value of the items described in the immediately preceding clauses (i) through (iv) shall not exceed 30.0% of Total Asset Value at any time.

 

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(k)                                 Dividends and Other Restricted Payments.  The Parent and the Borrower shall not, and shall not permit any of their Subsidiaries to, redeem, purchase, repurchase or otherwise acquire any Equity Interests of the Parent, the Borrower or any of their Subsidiaries from any Person other than the Parent, the Borrower or a Subsidiary unless (i) no Default or Event of Default exists or would result therefrom and (ii) the Borrower shall have delivered to the Administrative Agent at least 3 Business Days prior to any redemption, purchase, repurchase or other acquisition that exceeds $30,000,000 in the aggregate a Compliance Certificate evidencing that the Parent and the Borrower will be in compliance with the covenants contained in Section 10.1. after giving pro forma effect to such redemption, purchase, repurchase or other acquisition.  Notwithstanding the foregoing, but subject to the following sentence, if an Event of Default exists, the Parent and the Borrower shall not, and shall not permit any of their Subsidiaries to, declare or make any Restricted Payments except that (i) the Borrower may declare and make cash distributions to the Parent and other holders of Equity Interests in the Borrower with respect to any fiscal year to the extent necessary for the Parent to distribute, and the Parent may (A) make cash or equity distributions in an aggregate amount not to exceed the minimum amount necessary for the Parent to satisfy the requirements for qualification and taxation as a REIT and not be subject to income or excise taxation under Sections 857(b)(1), 857(b)(3), 860 or 4981 of the Internal Revenue Code and (B) make additional distributions in common Equity Interests of the Parent in an amount under this clause (B) that, when combined with the distributions under clause (A) above, do not exceed 100% of the taxable income of the Parent determined in accordance with Section 857(b)(2) of the Internal Revenue Code and (ii) Subsidiaries of the Borrower may make Restricted Payments to any Person that owns an Equity Interest in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made.  If a Default or Event of Default specified in Section 11.1.(a), Section 11.1.(f) or Section 11.1.(g) shall exist, or if as a result of the occurrence of any other Event of Default any of the Obligations have been accelerated pursuant to Section 11.2.(a), the Parent and the Borrower shall not, and shall not permit any Subsidiary to, make any Restricted Payments to any Person other than to the Borrower or any Subsidiary of the Borrower.

 

Section 10.2.  Permitted Liens; Negative Pledge.

 

(a)                                 The Parent and the Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary or to, create, assume, or incur any Lien (other than Permitted Liens) upon any of its properties, assets, income or profits of any character whether now owned or hereafter acquired if immediately prior to the creation, assumption or incurring of such Lien, or immediately thereafter, a Default or Event of Default is or would be in existence, including without limitation, a Default or Event of Default resulting from a violation of any of the covenants contained in Section 10.1.

 

(b)                                 The Parent and the Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary (other than an Excluded Subsidiary) to, enter into, assume or otherwise be bound by any Negative Pledge except for (i) a Negative Pledge contained in any agreement that evidences unsecured Indebtedness which contains restrictions on encumbering assets that are substantially similar to or less restrictive than those restrictions contained in the Loan Documents; (ii) a Negative Pledge contained in any agreement relating to assets to be sold where the restrictions on encumbering assets relate only to such assets pending such sale; (iii) a Negative Pledge contained in a joint venture agreement applicable solely to the assets or Equity Interests of such joint venture; and (iv) a Negative Pledge contained in any agreement (x) evidencing Secured Indebtedness of such Person, but only to the extent that no Default or Event of Default is in existence at the time such Secured Indebtedness is created, incurred or assumed, nor would result from the creation, incurrence or assumption of such Secured Indebtedness (including without limitation, a Default or Event of Default resulting from a violation of any of the covenants contained in Section 10.1.), (y) the Lien securing such Secured Indebtedness permitted to exist pursuant to this Agreement, and (z) which prohibits the creation of any other Lien on only the property securing such Secured Indebtedness.

 

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Section 10.3.  Restrictions on Intercompany Transfers.

 

The Parent and the Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary (other than an Excluded Subsidiary) to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary to: (a) pay dividends or make any other distribution on any of such Subsidiary’s capital stock or other Equity Interests owned by the Parent, the Borrower or any other Subsidiary; (b) pay any Indebtedness owed to the Parent, the Borrower or any other Subsidiary; (c) make loans or advances to the Parent, the Borrower or any other Subsidiary; or (d) transfer any of its property or assets to the Parent, the Borrower or any other Subsidiary, in each case, other than: (i) with respect to clauses (a) through (d), those encumbrances or restrictions (x) contained in any Loan Document or (y) contained in any other agreement that evidences unsecured Indebtedness containing encumbrances or restrictions on the actions described above that are substantially similar to or less restrictive than those contained in the Loan Documents, or (ii) with respect to clause (d), (x) restrictions contained in any agreement relating to the sale of a Subsidiary (other than the Borrower) or the assets of a Subsidiary pending sale, or relating to Secured Indebtedness secured by a Lien on assets that the Parent, the Borrower, any other Loan Party or any other Subsidiary may create, incur, assume, or permit or suffer to exist under the Loan Documents; provided that in any such case, the restrictions apply only to the Subsidiary or the assets that are the subject of such sale or Lien, as the case may be or (y) customary provisions restricting assignment of any agreement entered into by the Parent, the Borrower, any other Loan Party or any other Subsidiary in the ordinary course of business.

 

Section 10.4.  Restrictions on Use of Proceeds.

 

The Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary to, use any part of such proceeds to purchase or carry, or to reduce or retire or refinance any credit incurred to purchase or carry, any margin stock (within the meaning of Regulation U or Regulation X of the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying any such margin stock; provided, however, subject to Section 10.1.(k), the Borrower may use proceeds of the Loans to redeem, purchase, repurchase or otherwise acquire Equity Interests of the Parent, the Borrower any their Subsidiaries so long as such use will not result in any of the Loans or other Obligations being considered to be “purpose credit” directly or indirectly secured by margin stock within the meaning of Regulation U or Regulation X of the Board of Governors of the Federal Reserve System.

 

Section 10.5.  Merger, Consolidation, Sales of Assets and Other Arrangements.

 

The Parent and the Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary to, (i) enter into any transaction of merger or consolidation, (ii) liquidate, windup or dissolve itself (or suffer any liquidation or dissolution) or (iii) convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its business or assets, or the capital stock of or other Equity Interests in any of its Subsidiaries, whether now owned or hereafter acquired; provided, however, that:

 

(a)                                 any of the actions described in the immediately preceding clauses (i) through (iii) may be taken with respect to any Subsidiary so long as (x) immediately prior to the taking of such action, and immediately thereafter and after giving effect thereto, no Default or Event of Default is or would be in existence, (y) if such action includes the sale of all Equity Interests in a Subsidiary that is a Guarantor owned directly or indirectly by the Parent, such Subsidiary can and will be released from the Guaranty in accordance with Section 8.13.(b) and (z) if such action includes the disposition of an Unencumbered Property (regardless of whether such disposition takes the form of a direct sale of such Unencumbered Property, the sale of the Equity Interests of the Subsidiary that owns such Unencumbered Property or a merger of such Subsidiary), such Unencumbered Property can and will be removed as an Unencumbered Property in accordance with Section 4.2.;

 

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(b)                                 the Parent, the Borrower, the other Loan Parties and the other Subsidiaries may lease and sublease their respective assets, as lessor or sublessor (as the case may be), in the ordinary course of their business;

 

(c)                                  a Person may merge with a Loan Party so long as (i) the survivor of such merger is such Loan Party or, solely in the case of a Loan Party other than the Borrower or the Parent, becomes a Loan Party at the time of such merger, (ii) immediately prior to such merger, and immediately thereafter and after giving effect thereto, (x) no Default or Event of Default is or would be in existence, including, without limitation, a Default or Event of Default resulting from a breach of Section 10.1. and (y) the representations and warranties made or deemed made by Borrower and the applicable Loan Party in the Loan Documents to which any of them is a party shall be true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of the date of such extension with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) on and as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted under the Loan Documents, (iii) the Borrower shall have given the Administrative Agent at least 30-days’ prior written notice (or such shorter period as Administrative Agent shall approve) of such merger, such notice to include a certification as to the matters described in the immediately preceding clause (ii) (except that such prior notice shall not be required in the case of the merger of a Subsidiary that does not own an Unencumbered Property with and into a Loan Party but the Borrower shall give the Administrative Agent notice of any such merger promptly following the effectiveness of such merger) and (iv) at the time the Borrower gives notice pursuant to clause (iii) of this subsection, the Borrower shall have delivered to the Administrative Agent for distribution to each of the Lenders a Compliance Certificate, calculated on a pro forma basis, evidencing the continued compliance by the Loan Parties, as applicable, with the terms and conditions of this Agreement and the other Loan Documents, including without limitation, the financial covenants contained in Section 10.1., after giving effect to such merger; and

 

(d)                                 the Parent, the Borrower and each other Subsidiary may sell, transfer or dispose of assets among themselves.

 

Further, (x) no Loan Party shall enter into any sale-leaseback transactions or other transaction by which such Person shall remain liable as lessee (or the economic equivalent thereof) of any real or personal property that it has sold or leased to another Person and (y) no Subsidiary that is not a Loan Party shall enter into any sale-leaseback transactions or other transaction by which such Person shall remain liable as lessee (or the economic equivalent thereof) of any real or personal property that it has sold or leased to another unless no Default or Event of Default exists or would result therefrom.

 

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Section 10.6.  Plans.

 

The Parent and the Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary to, permit any of its respective assets to become or be deemed to be “plan assets” within the meaning of ERISA, the Internal Revenue Code and the respective regulations promulgated thereunder.

 

Section 10.7.  Fiscal Year.

 

The Parent and the Borrower shall not, and shall not permit any other Loan Party or other Subsidiary to, change its fiscal year from that in effect as of the Agreement Date, other than to change its fiscal year to that of the Parent and the Borrower.

 

Section 10.8.  Modifications of Organizational Documents.

 

The Parent and the Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary to, amend, supplement, restate or otherwise modify or waive the application of any provision of its certificate or articles of incorporation or formation, by-laws, operating agreement, declaration of trust, partnership agreement or other applicable organizational document if such amendment, supplement, restatement or other modification (a) is adverse to the interest of the Administrative Agent, the Issuing Banks or the Lenders or (b) could reasonably be expected to have a Material Adverse Effect.

 

Section 10.9.  Transactions with Affiliates.

 

The Parent and the Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary to, permit to exist or enter into any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate, except (a) as set forth on Schedule 7.1.(r) or (b) transactions pursuant to the reasonable requirements of the business of the Parent, the Borrower, such other Loan Party or such other Subsidiary and upon fair and reasonable terms which are no less favorable to the Parent, the Borrower, such other Loan Party or such other Subsidiary than would be obtained in a comparable arm’s length transaction with a Person that is not an Affiliate.

 

Section 10.10.  Derivatives Contracts.

 

The Parent and the Borrower shall not, and shall not permit any other Loan Party or any other Subsidiary to, enter into or become obligated in respect of Derivatives Contracts other than Derivatives Contracts entered into by the Parent, the Borrower, any such Loan Party or any such Subsidiary in the ordinary course of business and which establish an effective hedge in respect of liabilities, commitments or assets held or reasonably anticipated by the Parent, the Borrower, such other Loan Party or such other Subsidiary.

 

ARTICLE XI. DEFAULT

 

Section 11.1.  Events of Default.

 

Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of Applicable Law or pursuant to any judgment or order of any Governmental Authority:

 

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(a)                                 Default in Payment.  The Borrower shall fail to pay when due under this Agreement or any other Loan Document (whether upon demand, at maturity, by reason of acceleration or otherwise) (i) the principal of any of the Loans or any Reimbursement Obligation, (ii) any interest on any of the Loans, Reimbursement Obligations or L/C Disbursements, or any Fee payable by the Borrower, and solely in the case of this clause (ii), such failure shall continue for a period of 3 Business Days or (iii) other payment Obligations owing by the Borrower under this Agreement or any other Loan Document, or any other Loan Party shall fail to pay when due any payment obligation owing by such Loan Party under any Loan Document to which it is a party, and solely in the case of this clause (iii), such failure shall continue for a period of 3 Business Days.

 

(b)                                 Default in Performance.

 

(i)                                     Any Loan Party shall fail to perform or observe any term, covenant, condition or agreement on its part to be performed or observed and contained in Article IX. or Article X. (other than Section 10.6.); or

 

(ii)                                  Any Loan Party shall fail to perform or observe any term, covenant, condition or agreement contained in this Agreement or any other Loan Document to which it is a party and not otherwise mentioned in this Section, and solely in the case of this subsection (b)(ii), such failure shall continue for a period of 30 days after the earlier of (x) the date upon which a Responsible Officer of the Borrower or such other Loan Party obtains knowledge of such failure or (y) the date upon which the Borrower has received written notice of such failure from the Administrative Agent.

 

(c)                                  Misrepresentations.  Any written statement, representation or warranty made or deemed made by or on behalf of any Loan Party under this Agreement or under any other Loan Document, or any amendment hereto or thereto, or in any other writing or statement at any time furnished by, or at the direction of, any Loan Party to the Administrative Agent, any Issuing Bank or any Lender, shall at any time prove to have been incorrect or misleading in any material respect when furnished or made or deemed made.

 

(d)                                 Indebtedness Cross-Default.

 

(i)                                     The Parent, the Borrower, any other Loan Party or any other Subsidiary shall fail to make any payment when due and payable in respect of any Indebtedness (other than the Loans, Reimbursement Obligations and Derivatives Contracts) having an aggregate outstanding principal amount, in each case individually or in the aggregate with all other Indebtedness as to which such a failure exists, of $25,000,000 or more (or in the case of Nonrecourse Indebtedness, $175,000,000 or more) (in each case, “Material Indebtedness”); or

 

(ii)                                  (x) The maturity of any Material Indebtedness shall have been accelerated in accordance with the provisions of any indenture, contract or instrument evidencing, providing for the creation of or otherwise concerning such Material Indebtedness or (y) any Material Indebtedness shall have been required to be prepaid, repurchased, redeemed or defeased prior to the stated maturity thereof, in each case of this clause (y), other than as a result of the sale or other transfer of the collateral for any such Material Indebtedness that is Secured Indebtedness; or

 

(iii)                               Any other event shall have occurred and be continuing which, with or without the passage of time, the giving of notice, or otherwise, would permit any holder or holders of any Material Indebtedness, any trustee or agent acting on behalf of such holder or holders or any other Person, to accelerate the maturity of any such Material Indebtedness or require any such Material Indebtedness to be prepaid, repurchased, redeemed or defeased prior to its stated maturity; provided that upon Administrative Agent’s receipt of evidence that such event has been waived in writing by such holder, holders, trustee, agent or other Person holding any such Material Indebtedness, such event shall automatically cease to constitute an Event of Default hereunder; or

 

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(iv)                              There occurs an “Event of Default” under and as defined in any Derivatives Contract as to which the Parent, the Borrower, any other Loan Party or any other Subsidiary is a “Defaulting Party” (as defined therein), or there occurs an “Early Termination Date” (as defined therein) in respect of any Specified Derivatives Contract as a result of a “Termination Event” (as defined therein) as to which the Borrower or any of its Subsidiaries is an “Affected Party” (as defined therein), in each case, if the Derivatives Termination Value payable by the Parent, the Borrower, any other Loan Party or any other Subsidiary exceeds $25,000,000 in the aggregate.

 

(e)                                  Voluntary Bankruptcy Proceeding.  The Parent, the Borrower, any other Loan Party or any other Significant Subsidiary shall:  (i) commence a voluntary case under the Bankruptcy Code or other federal bankruptcy laws (as now or hereafter in effect); (ii) file a petition seeking to take advantage of any other Applicable Laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts; (iii) consent to, or fail to contest in a timely and appropriate manner, any petition filed against it in an involuntary case under such bankruptcy laws or other Applicable Laws or consent to any proceeding or action described in the immediately following subsection (f); (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign; (v) admit in writing its inability to pay its debts as they become due; (vi) make a general assignment for the benefit of creditors; (vii) make a conveyance fraudulent as to creditors under any Applicable Law; or (viii) take any corporate or partnership action for the purpose of effecting any of the foregoing.

 

(f)                                   Involuntary Bankruptcy Proceeding.  A case or other proceeding shall be commenced against the Parent, the Borrower, any other Loan Party or any other Significant Subsidiary in any court of competent jurisdiction seeking:  (i) relief under the Bankruptcy Code or other federal bankruptcy laws (as now or hereafter in effect) or under any other Applicable Laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts; or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such Person, or of all or any substantial part of the assets, domestic or foreign, of such Person, and in the case of either clause (i) or (ii) such case or proceeding shall continue undismissed or unstayed for a period of 60 consecutive days, or an order granting the remedy or other relief requested in such case or proceeding (including, but not limited to, an order for relief under such Bankruptcy Code or such other federal bankruptcy laws) shall be entered.

 

(g)                                  Revocation of Loan Documents.  Any Loan Party shall (or shall attempt to) disavow, revoke or terminate any Loan Document to which it is a party or shall otherwise challenge or contest in any action, suit or proceeding in any court or before any Governmental Authority the validity or enforceability of any Loan Document or any Loan Document shall cease to be in full force and effect (except as a result of the express terms thereof).

 

(h)                                 Judgment.  A judgment or order for the payment of money or for an injunction or other non-monetary relief shall be entered against the Parent, the Borrower, any other Loan Party or any other Subsidiary by any court or other tribunal and (i) such judgment or order shall continue for a period of 30 consecutive days without being satisfied, paid, stayed or dismissed through appropriate appellate proceedings and (ii) either (A) the amount of such judgment or order for which insurance has not been acknowledged in writing by the applicable insurance carrier (or the amount as to which the insurer has denied liability) exceeds, individually or together with all other such judgments or orders entered against the Parent, the Borrower, any other Loan Party or any other Subsidiary, $25,000,000 or (B) in the case of an injunction or other non-monetary relief, such injunction or judgment or order could reasonably be expected to have a Material Adverse Effect.

 

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(i)                                     Attachment.  A warrant, writ of attachment, execution or similar process shall be issued against any property of the Parent, the Borrower, any other Loan Party or any other Subsidiary, which exceeds, individually or together with all other such warrants, writs, executions and processes, $25,000,000 in amount and such warrant, writ, execution or process shall not be satisfied, paid, discharged, vacated, stayed or bonded for a period of 20 consecutive days; provided, however, that if a bond has been issued in favor of the claimant or other Person obtaining such warrant, writ, execution or process, the issuer of such bond shall execute a waiver or subordination agreement in form and substance reasonably satisfactory to the Administrative Agent pursuant to which the issuer of such bond subordinates its right of reimbursement, contribution or subrogation to the Obligations and waives or subordinates any Lien it may have on the assets of the Borrower, any other Loan Party or any other Subsidiary.

 

(j)                                    ERISA.  The aggregate amount of liabilities of the Borrower, the other Loan Parties and the other Subsidiaries resulting from existing ERISA Events, together with the aggregate minimum funding contributions payable by the Borrower, the other Loan Parties and the other Subsidiaries as a result of the “benefit obligation” of all Plans exceeding the “fair market value of plan assets” for such Plans, all as determined, and with such terms defined, in accordance with FASB ASC 715, shall exceed $25,000,000 in the aggregate during any fiscal year of the Borrower.

 

(k)                                 Loan Documents.  An Event of Default (as defined therein) shall occur under any of the other Loan Documents.

 

(l)                                     Change of Control/Change in Management.

 

(i)                                     Any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person will be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35.0% of the total voting power of the then outstanding voting stock of the Parent;

 

(ii)                                  During any period of 12 consecutive months ending after the Agreement Date, individuals who at the beginning of any such 12-month period constituted the Board of Directors of the Parent (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Parent was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Parent then in office;

 

(iii)                               The Parent or a Wholly Owned Subsidiary of the Parent (x) shall cease to be the sole managing member of the Borrower or (y) shall cease to have the sole and exclusive power to exercise all management and control over the Borrower; or

 

(iv)                              the Parent shall cease to own and control, directly or indirectly, at least 80% of the outstanding Equity Interests of the Borrower.

 

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Section 11.2.  Remedies Upon Event of Default.

 

Upon the occurrence of an Event of Default the following provisions shall apply:

 

(a)                                 Acceleration; Termination of Facilities.

 

(i)                                     Automatic.  Upon the occurrence of an Event of Default specified in Sections 11.1.(e) or 11.1.(f), (1)(A) the principal of, and all accrued interest on, the Loans and the Notes at the time outstanding, (B) an amount equal to the Stated Amount of all Letters of Credit outstanding as of the date of the occurrence of such Event of Default for deposit into the Letter of Credit Collateral Account and (C) all of the other Obligations, including, but not limited to, the other amounts owed to the Lenders and the Administrative Agent under this Agreement, the Notes or any of the other Loan Documents shall become immediately and automatically due and payable without presentment, demand, protest, or other notice of any kind, all of which are expressly waived by the Borrower on behalf of itself and the other Loan Parties, and (2) the Commitments and the Swingline Commitment and the obligation of the Issuing Banks to issue Letters of Credit hereunder, shall all immediately and automatically terminate.

 

(ii)                                  Optional.  If any other Event of Default shall exist, the Administrative Agent may, and at the direction of the Requisite Lenders shall:  (1) declare (A) the principal of, and accrued interest on, the Loans and the Notes at the time outstanding, (B) an amount equal to the Stated Amount of all Letters of Credit outstanding as of the date of the occurrence of such Event of Default for deposit into the Letter of Credit Collateral Account and (C) all of the other Obligations, including, but not limited to, the other amounts owed to the Lenders and the Administrative Agent under this Agreement, the Notes or any of the other Loan Documents to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower on behalf of itself and the other Loan Parties, and (2) terminate the Commitments and the Swingline Commitment and the obligation of the Issuing Banks to issue Letters of Credit hereunder.

 

(b)                                 Loan Documents.  The Requisite Lenders may direct the Administrative Agent to, and the Administrative Agent if so directed shall, exercise any and all of its rights under any and all of the other Loan Documents.

 

(c)                                  Applicable Law.  The Requisite Lenders may direct the Administrative Agent to, and the Administrative Agent if so directed shall, exercise all other rights and remedies it may have under any Applicable Law.

 

(d)                                 Appointment of Receiver.  To the extent permitted by Applicable Law, the Administrative Agent and the Lenders shall be entitled to the appointment of a receiver for the assets and properties of the Parent, the Borrower, the other Loan Parties and the other Subsidiaries, without notice of any kind whatsoever and without regard to the adequacy of any security for the Obligations or the solvency of any party bound for its payment, to take possession of all or any portion of the property and/or the business operations of the Parent, the Borrower, the other Loan Parties and the other Subsidiaries and to exercise such power as the court shall confer upon such receiver.

 

(e)                                  Remedies in Respect of Specified Derivatives Contracts.  Notwithstanding any other provision of this Agreement or other Loan Document, each Specified Derivatives Provider shall have the right, with prompt notice to the Administrative Agent, but without the approval or consent of or other action by the Administrative Agent, the Issuing Banks or the Lenders, and without limitation of other

 

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remedies available to such Specified Derivatives Provider under contract or Applicable Law, to undertake any of the following:  (a)  to declare an event of default, termination event or other similar event under any Specified Derivatives Contract and to create an “Early Termination Date” (as defined therein) in respect thereof, (b) to determine net termination amounts in respect of any and all Specified Derivatives Contracts in accordance with the terms thereof, and to set off amounts among such contracts, (c)  to set off or proceed against deposit account balances, securities account balances and other property and amounts held by such Specified Derivatives Provider and (d) to prosecute any legal action against the Parent, the Borrower, any other Loan Party or other Subsidiary to enforce or collect net amounts owing to such Specified Derivatives Provider pursuant to any Specified Derivatives Contract.

 

Section 11.3.  Remedies Upon Default.

 

Upon the occurrence of a Default specified in Section 11.1.(f), the Commitments, the Swingline Commitment and the obligation of the Issuing Banks to issue Letters of Credit shall immediately and automatically terminate.

 

Section 11.4.  Marshaling; Payments Set Aside.

 

No Lender Party shall be under any obligation to marshal any assets in favor of any Loan Party or any other party or against or in payment of any or all of the Guaranteed Obligations.  To the extent that any Loan Party makes a payment or payments to a Lender Party, or a Lender Party enforces its security interest or exercises its right of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the Guaranteed Obligations, or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

Section 11.5.  Allocation of Proceeds.

 

If an Event of Default exists, all payments received by the Administrative Agent (or any Lender as a result of its exercise of remedies permitted under Section 13.3.) under any of the Loan Documents in respect of any Guaranteed Obligations shall be applied in the following order and priority:

 

(a)                                 to payment of that portion of the Guaranteed Obligations constituting fees, indemnities, expenses and other amounts, including attorney fees, payable to the Administrative Agent in its capacity as such, each Issuing Bank in its capacity as such and the Swingline Lender in its capacity as such, ratably among the Administrative Agent, the Issuing Banks and Swingline Lender in proportion to the respective amounts described in this clause (a) payable to them;

 

(b)                                 to payment of that portion of the Guaranteed Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders under the Loan Documents, including attorney fees, ratably among the Lenders in proportion to the respective amounts described in this clause (b) payable to them;

 

(c)                                  to payment of that portion of the Guaranteed Obligations constituting accrued and unpaid interest on the Swingline Loans;

 

(d)                                 to payment of that portion of the Guaranteed Obligations constituting accrued and unpaid interest on the Loans and Reimbursement Obligations, ratably among the Lenders and the Issuing Banks in proportion to the respective amounts described in this clause (d) payable to them;

 

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(e)                                  to payment of that portion of the Guaranteed Obligations constituting unpaid principal of the Swingline Loans;

 

(f)                                   to payment of that portion of the Guaranteed Obligations constituting unpaid principal of the Loans, Reimbursement Obligations, other Letter of Credit Liabilities and payment obligations then owing under Specified Derivatives Contracts, ratably among the Lenders, the Issuing Banks and the Specified Derivatives Providers in proportion to the respective amounts described in this clause (f) payable to them; provided, however, to the extent that any amounts available for distribution pursuant to this clause are attributable to the issued but undrawn amount of an outstanding Letter of Credit, such amounts shall be paid to the Administrative Agent for deposit into the Letter of Credit Collateral Account; and

 

(g)                                  the balance, if any, after all of the Guaranteed Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Applicable Law.

 

Notwithstanding the foregoing, Guaranteed Obligations arising under Specified Derivatives Contracts shall be excluded from the application described above if the Administrative Agent has not received written notice thereof, together with such supporting documentation as the Administrative Agent may request, from the applicable Specified Derivatives Provider, as the case may be.  Each Specified Derivatives Provider not a party to this Agreement that has given the notice contemplated by the preceding sentence shall, by such notice, be deemed to have acknowledged and accepted the appointment of the Administrative Agent pursuant to the terms of Article XII. for itself and its Affiliates as if a “Lender” party hereto.

 

Section 11.6.  Letter of Credit Collateral Account.

 

(a)                                 As collateral security for the prompt payment in full when due of all Letter of Credit Liabilities and the other Obligations, the Borrower hereby pledges and grants to the Administrative Agent, for the ratable benefit of the Administrative Agent, the Issuing Banks and the Lenders as provided herein, a security interest in all of its right, title and interest in and to the Letter of Credit Collateral Account and the balances from time to time in the Letter of Credit Collateral Account (including the investments and reinvestments therein provided for below).  The balances from time to time in the Letter of Credit Collateral Account shall not constitute payment of any Letter of Credit Liabilities until applied by the applicable Issuing Bank as provided herein.  Anything in this Agreement to the contrary notwithstanding, funds held in the Letter of Credit Collateral Account shall be subject to withdrawal only as provided in this Section.

 

(b)                                 Amounts on deposit in the Letter of Credit Collateral Account shall be invested and reinvested by the Administrative Agent in such Cash Equivalents as the Administrative Agent shall determine in its sole discretion.  All such investments and reinvestments shall be held in the name of and be under the sole dominion and control of the Administrative Agent for the ratable benefit of the Administrative Agent, the Issuing Banks and the Revolving Lenders; provided, that all earnings on such investments will be credited to and retained in the Letter of Credit Collateral Account.  The Administrative Agent shall exercise reasonable care in the custody and preservation of any funds held in the Letter of Credit Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Administrative Agent accords other funds deposited with the Administrative Agent, it being understood that the Administrative Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any funds held in the Letter of Credit Collateral Account.

 

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(c)                                  If a drawing pursuant to any Letter of Credit occurs on or prior to the expiration date of such Letter of Credit, the Borrower and the Lenders authorize the Administrative Agent to use the monies deposited in the Letter of Credit Collateral Account to reimburse the applicable Issuing Bank for the payment made by such Issuing Bank to the beneficiary with respect to such drawing.

 

(d)                                 If an Event of Default exists, the Administrative Agent may (and, if instructed by the Requisite Lenders, shall) in its (or their) discretion at any time and from time to time elect to liquidate any such investments and reinvestments and apply the proceeds thereof to the Obligations in accordance with Section 11.5.  Notwithstanding the foregoing, the Administrative Agent shall not liquidate or release any such amounts if such liquidation or release would result in the amount available in the Letter of Credit Collateral Account to be less than the Stated Amount of all Extended Letters of Credit that remain outstanding.

 

(e)                                  So long as no Default or Event of Default exists, and to the extent amounts on deposit in or credited to the Letter of Credit Collateral Account exceed the aggregate amount of the Letter of Credit Liabilities then due and owing, the Administrative Agent shall, from time to time, at the request of the Borrower, deliver to the Borrower within 10 Business Days after the Administrative Agent’s receipt of such request from the Borrower, against receipt but without any recourse, warranty or representation whatsoever, such amount of the credit balances in the Letter of Credit Collateral Account as exceeds the aggregate amount of Letter of Credit Liabilities at such time.  Upon the expiration, termination or cancellation of an Extended Letter of Credit for which the Lenders reimbursed (or funded participations in) a drawing deemed to have occurred under the fourth sentence of Section 2.2.(b) for deposit into the Letter of Credit Collateral Account but in respect of which the Lenders have not otherwise received payment for the amount so reimbursed or funded, the Administrative Agent shall promptly remit to the Lenders the amount so reimbursed or funded for such Extended Letter of Credit that remains in the Letter of Credit Collateral Account, pro rata in accordance with the respective unpaid reimbursements or funded participations of the Lenders in respect of such Extended Letter of Credit, against receipt but without any recourse, warranty or representation whatsoever.  When all of the Obligations shall have been indefeasibly paid in full and no Letters of Credit remain outstanding, the Administrative Agent shall deliver to the Borrower, against receipt but without any recourse, warranty or representation whatsoever, the balances remaining in the Letter of Credit Collateral Account.

 

(f)                                   The Borrower shall pay to the Administrative Agent from time to time such fees as the Administrative Agent normally charges for similar services in connection with the Administrative Agent’s administration of the Letter of Credit Collateral Account and investments and reinvestments of funds therein.

 

Section 11.7.  Performance by Administrative Agent.

 

If the Borrower or any other Loan Party shall fail to perform any covenant, duty or agreement contained in any of the Loan Documents, the Administrative Agent may, after notice to the Borrower, perform or attempt to perform such covenant, duty or agreement on behalf of the Borrower or such other Loan Party after the expiration of any cure or grace periods set forth herein.  In such event, the Borrower shall, at the request of the Administrative Agent, promptly pay any amount reasonably expended by the Administrative Agent in such performance or attempted performance to the Administrative Agent, together with interest thereon at the applicable Post-Default Rate from the date of such expenditure until paid.  Notwithstanding the foregoing, neither the Administrative Agent nor any Lender shall have any liability or responsibility whatsoever for the performance of any obligation of the Borrower under this Agreement or any other Loan Document.

 

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Section 11.8.  Rights Cumulative.

 

(a)                                 Generally.  The rights and remedies of the Administrative Agent, the Issuing Banks and the Lenders under this Agreement and each of the other Loan Documents and of the Specified Derivatives Providers under the Specified Derivatives Contracts, shall be cumulative and not exclusive of any rights or remedies which any of them may otherwise have under Applicable Law.  In exercising their respective rights and remedies the Administrative Agent, the Issuing Banks, the Lenders, and the Specified Derivatives Providers may be selective and no failure or delay by any such Lender Party in exercising any right shall operate as a waiver of it, nor shall any single or partial exercise of any power or right preclude its other or further exercise or the exercise of any other power or right.

 

(b)                                 Enforcement by Administrative Agent.  Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Article XI. for the benefit of all the Lenders and the Issuing Banks; provided that the foregoing shall not prohibit (i) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (ii) any Issuing Bank or the Swingline Lender from exercising the rights and remedies that inure to its benefit (solely in its capacity as an Issuing Bank or Swingline Lender, as the case may be) hereunder or under the other Loan Documents, (iii) any Specified Derivatives Provider from exercising the rights and remedies that inure to its benefit under any Specified Derivatives Contract, (iv) any Lender from exercising setoff rights in accordance with Section 13.3. (subject to the terms of Section 3.3.), or (v) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided, further, that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (x) the Requisite Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Article XI. and (y) in addition to the matters set forth in clauses (ii), (iv) and (v) of the preceding proviso and subject to Section 3.3., any Lender may, with the consent of the Requisite Lenders, enforce any rights and remedies available to it and as authorized by the Requisite Lenders.

 

ARTICLE XII. THE ADMINISTRATIVE AGENT

 

Section 12.1.  Appointment and Authorization.

 

Each Lender hereby irrevocably appoints and authorizes the Administrative Agent to take such action as contractual representative on such Lender’s behalf and to exercise such powers under this Agreement and the other Loan Documents as are specifically delegated to the Administrative Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Not in limitation of the foregoing, each Lender authorizes and directs the Administrative Agent to enter into the Loan Documents for the benefit of the Lenders.  Each Lender hereby agrees that, except as otherwise set forth herein, any action taken by the Requisite Lenders in accordance with the provisions of this Agreement or the Loan Documents, and the exercise by the Requisite Lenders of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders.  Nothing herein shall be construed to deem the Administrative Agent a trustee or fiduciary for any Lender or to impose on the Administrative Agent duties or obligations other than those expressly provided for herein.  Without limiting the generality of the foregoing, the use of the

 

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terms “Agent”, “Administrative Agent”, “agent” and similar terms in the Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law.  Instead, use of such terms is merely a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.  The Administrative Agent shall deliver or otherwise make available to each Lender, promptly upon receipt thereof by the Administrative Agent, copies of each of the financial statements, certificates, notices and other documents delivered to the Administrative Agent pursuant to Article IX. that the Parent or the Borrower is not otherwise required to deliver directly to the Lenders.  The Administrative Agent will furnish to any Lender, upon the request of such Lender, a copy (or, where appropriate, an original) of any document, instrument, agreement, certificate or notice furnished to the Administrative Agent by the Parent, the Borrower, any other Loan Party or any other Affiliate of the Borrower, pursuant to this Agreement or any other Loan Document not already delivered or otherwise made available to such Lender pursuant to the terms of this Agreement or any such other Loan Document.  As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of any of the Obligations), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Requisite Lenders (or all of the Lenders if explicitly required under any other provision of this Agreement), and such instructions shall be binding upon all Lenders and all holders of any of the Obligations; provided, however, that, notwithstanding anything in this Agreement to the contrary, the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or any other Loan Document or Applicable Law.  Not in limitation of the foregoing, the Administrative Agent may exercise any right or remedy it or the Lenders may have under any Loan Document upon the occurrence of a Default or an Event of Default unless the Requisite Lenders have directed the Administrative Agent otherwise.  Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Requisite Lenders, or where applicable, all the Lenders.

 

Section 12.2.  Administrative Agent as Lender.

 

The Lender acting as Administrative Agent shall have the same rights and powers as a Lender or a Specified Derivatives Provider, as the case may be, under this Agreement, any other Loan Document or any Specified Derivatives Contract, as the case may be, as any other Lender, or Specified Derivatives Provider and may exercise the same as though it were not the Administrative Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include Wells Fargo in each case in its individual capacity.  Wells Fargo and its Affiliates may each accept deposits from, maintain deposits or credit balances for, invest in, lend money to, act as trustee under indentures of, serve as financial advisor to, and generally engage in any kind of business with the Borrower, any other Loan Party or any other Affiliate thereof as if it were any other bank and without any duty to account therefor to the Issuing Banks, the other Lenders, or any Specified Derivatives Providers.  Further, the Administrative Agent and any Affiliate may accept fees and other consideration from the Parent, the Borrower, any other Loan Party or any other Subsidiary for services in connection with this Agreement, any Specified Derivatives Contract, or otherwise without having to account for the same to the Issuing Banks, the other Lenders, or any Specified Derivatives Providers.  The Issuing Banks and the Lenders acknowledge that, pursuant to such activities, Wells Fargo or its Affiliates may receive information regarding the Borrower, other Loan Parties, other Subsidiaries and other Affiliates (including information that may be subject to confidentiality obligations in favor of such Person) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them.

 

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Section 12.3.  Approvals of Lenders.

 

All communications from the Administrative Agent to any Lender requesting such Lender’s determination, consent or approval (a) shall be given in the form of a written notice to such Lender, (b) shall be accompanied by a description of the matter or issue as to which such determination, consent or approval is requested, or shall advise such Lender where information, if any, regarding such matter or issue may be inspected, or shall otherwise describe the matter or issue to be resolved and (c) shall include, if reasonably requested by such Lender and to the extent not previously provided to such Lender, written materials provided to the Administrative Agent by the Parent, the Borrower in respect of the matter or issue to be resolved.  Unless a Lender shall give written notice to the Administrative Agent that it specifically objects to the requested determination, consent or approval within 10 Business Days (or such lesser or greater period as may be specifically required under the express terms of the Loan Documents) of receipt of such communication, such Lender shall be deemed to have conclusively approved such requested determination, consent or approval.

 

Section 12.4.  Notice of Events of Default.

 

The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Administrative Agent has received notice from a Lender, the Parent or the Borrower referring to this Agreement, describing with reasonable specificity such Default or Event of Default and stating that such notice is a “notice of default.”  If any Lender (excluding the Lender which is also serving as the Administrative Agent) becomes aware of any Default or Event of Default, it shall promptly send to the Administrative Agent such a “notice of default”; provided, a Lender’s failure to provide such a “notice of default” to the Administrative Agent shall not result in any liability of such Lender to any other party to any of the Loan Documents.  Further, if the Administrative Agent receives such a “notice of default,” the Administrative Agent shall give prompt notice thereof to the Lenders.

 

Section 12.5.  Administrative Agent’s Reliance.

 

Notwithstanding any other provisions of this Agreement or any other Loan Documents, neither the Administrative Agent nor any of its Related Parties shall be liable for any action taken or not taken by it under or in connection with this Agreement or any other Loan Document, except for its or their own gross negligence or willful misconduct in connection with its duties expressly set forth herein or therein as determined by a court of competent jurisdiction in a final non-appealable judgment.  Without limiting the generality of the foregoing, the Administrative Agent may consult with legal counsel (including its own counsel or counsel for the Parent, the Borrower or any other Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts.  Neither the Administrative Agent nor any of its Related Parties: (a) makes any warranty or representation to any Lender, any Issuing Bank or any other Person, or shall be responsible to any Lender, any Issuing Bank or any other Person for any statement, warranty or representation made or deemed made by the Parent, the Borrower, any other Loan Party or any other Person in or in connection with this Agreement or any other Loan Document; (b) shall have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document or the satisfaction of any conditions precedent under this Agreement or any Loan Document on the part of the Parent, the Borrower or other Persons, or to inspect the property, books or records of the Parent, the Borrower or any other Person; (c) shall be responsible to any Lender or any Issuing Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document, any other instrument or document furnished pursuant thereto or any collateral covered thereby or the perfection or priority of any Lien in favor of the Administrative Agent on behalf of the Lenders Parties in any such collateral; (d) shall have any liability in respect of any recitals, statements,

 

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certifications, representations or warranties contained in any of the Loan Documents or any other document, instrument, agreement, certificate or statement delivered in connection therewith; and (e) shall incur any liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telephone, telecopy or electronic mail) believed by it to be genuine and signed, sent or given by the proper party or parties.  The Administrative Agent may execute any of its duties under the Loan Documents by or through agents, employees or attorneys-in-fact and shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct in the selection of such agent or attorney-in-fact as determined by a court of competent jurisdiction in a final non-appealable judgment.

 

Section 12.6.  Indemnification of Administrative Agent.

 

Each Lender agrees to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so) pro rata in accordance with such Lender’s respective Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, reasonable out-of-pocket costs and expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against the Administrative Agent (in its capacity as Administrative Agent but not as a Lender) in any way relating to or arising out of the Loan Documents, any transaction contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under the Loan Documents (collectively, “Indemnifiable Amounts”); provided, however, that no Lender shall be liable for any portion of such Indemnifiable Amounts to the extent resulting from the Administrative Agent’s gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, non-appealable judgment; provided, further, that no action taken in accordance with the directions of the Requisite Lenders (or all of the Lenders, if expressly required hereunder) shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section.  Without limiting the generality of the foregoing (but subject to the provisos in the previous sentence), each Lender agrees to reimburse the Administrative Agent (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so) promptly upon demand for its Pro Rata Share (determined as of the time that the applicable reimbursement is sought) of any out-of-pocket expenses (including the reasonable fees and expenses of the counsel to the Administrative Agent) incurred by the Administrative Agent in connection with the preparation, negotiation, execution, administration, or enforcement (whether through negotiations, legal proceedings, or otherwise) of, or legal advice with respect to the rights or responsibilities of the parties under, the Loan Documents, any suit or action brought by the Administrative Agent to enforce the terms of the Loan Documents and/or collect any Obligations, any “lender liability” suit or claim brought against the Administrative Agent and/or the Lenders, and any claim or suit brought against the Administrative Agent and/or the Lenders arising under any Environmental Laws.  Such out-of-pocket expenses (including counsel fees) shall be advanced by the Lenders on the request of the Administrative Agent notwithstanding any claim or assertion that the Administrative Agent is not entitled to indemnification hereunder upon receipt of an undertaking by the Administrative Agent that the Administrative Agent will reimburse the Lenders if it is actually and finally determined by a court of competent jurisdiction that the Administrative Agent is not so entitled to indemnification.  The agreements in this Section shall survive the payment of the Loans and all other Obligations and the termination of this Agreement.  If the Borrower shall reimburse the Administrative Agent for any Indemnifiable Amount following payment by any Lender to the Administrative Agent in respect of such Indemnifiable Amount pursuant to this Section, the Administrative Agent shall share such reimbursement on a ratable basis with each Lender making any such payment.

 

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Section 12.7.  Lender Credit Decision, Etc.

 

Each of the Lenders and each Issuing Bank expressly acknowledges and agrees that neither the Administrative Agent nor any of its Related Parties has made any representations or warranties to such Issuing Bank or such Lender and that no act by the Administrative Agent hereafter taken, including any review of the affairs of the Borrower, any other Loan Party or any other Subsidiary or Affiliate, shall be deemed to constitute any such representation or warranty by the Administrative Agent to any Issuing Bank or any Lender.  Each of the Lenders and each Issuing Bank acknowledges that it has made its own credit and legal analysis and decision to enter into this Agreement and the transactions contemplated hereby, independently and without reliance upon the Administrative Agent, any other Lender or counsel to the Administrative Agent, or any of their respective Related Parties, and based on the financial statements of the Parent, the Borrower, the other Loan Parties, the other Subsidiaries and other Affiliates, and inquiries of such Persons, its independent due diligence of the business and affairs of the Parent, the Borrower, the other Loan Parties, the other Subsidiaries and other Persons, its review of the Loan Documents, the legal opinions required to be delivered to it hereunder, the advice of its own counsel and such other documents and information as it has deemed appropriate.  Each of the Lenders and each Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent, any other Lender or counsel to the Administrative Agent or any of their respective Related Parties, and based on such review, advice, documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under the Loan Documents.  The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Parent, the Borrower or any other Loan Party of the Loan Documents or any other document referred to or provided for therein or to inspect the properties or books of, or make any other investigation of, the Parent, the Borrower, any other Loan Party or any other Subsidiary.  Except for notices, reports and other documents and information expressly required to be furnished to the Lenders and the Issuing Banks by the Administrative Agent under this Agreement or any of the other Loan Documents, the Administrative Agent shall have no duty or responsibility to provide any Lender or any Issuing Bank with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Parent, the Borrower, any other Loan Party or any other Affiliate thereof which may come into possession of the Administrative Agent or any of its Related Parties.  Each of the Lenders and each Issuing Bank acknowledges that the Administrative Agent’s legal counsel in connection with the transactions contemplated by this Agreement is only acting as counsel to the Administrative Agent and is not acting as counsel to any Lender or any Issuing Bank.

 

Section 12.8.  Successor Administrative Agent.

 

The Administrative Agent may resign at any time as Administrative Agent under the Loan Documents by giving written notice thereof to the Lenders and the Borrower.  If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Requisite Lenders may, to the extent permitted by Applicable Law, by notice in writing to the Borrower and such Person, remove such Person as Administrative Agent.  Upon any such resignation or removal, the Requisite Lenders shall have the right to appoint a successor Administrative Agent which appointment shall, provided no Default or Event of Default exists, be subject to the Borrower’s approval, which approval shall not be unreasonably withheld, delayed or conditioned (except that the Borrower shall, in all events, be deemed to have approved each Lender and any of its Affiliates as a successor Administrative Agent).  If no successor Administrative Agent shall have been so appointed in accordance with the immediately preceding sentence, and shall have accepted such appointment, within 30 days after the current Administrative Agent’s giving of notice of resignation or removal, then the current Administrative Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor Administrative Agent, which shall be a Lender, if any Lender shall be willing to serve, and otherwise shall be an Eligible Assignee; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no

 

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Lender has accepted such appointment, then such resignation or removal shall nonetheless become effective in accordance with such notice and (1) the Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made to each Lender and each Issuing Bank directly, until such time as a successor Administrative Agent has been appointed as provided for above in this Section; provided, further that such Lenders and such Issuing Banks so acting directly shall be and be deemed to be protected by all indemnities and other provisions herein for the benefit and protection of the Administrative Agent as if each such Lender or Issuing Bank were itself the Administrative Agent.  Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the current Administrative Agent, and the current Administrative Agent shall be discharged from its duties and obligations under the Loan Documents.  Any resignation by or removal of an Administrative Agent shall also constitute the resignation or removal as an Issuing Bank and as the Swingline Lender by the Lender then acting as Administrative Agent (the “Resigning Lender”).  Upon the acceptance of a successor’s appointment as Administrative Agent hereunder (i) the Resigning Lender shall be discharged from all duties and obligations of an Issuing Bank and the Swingline Lender hereunder and under the other Loan Documents and (ii) any successor Issuing Bank shall issue letters of credit in substitution for all Letters of Credit issued by the Resigning Lender as Issuing Banks outstanding at the time of such succession (which letters of credit issued in substitutions shall be deemed to be Letters of Credit issued hereunder) or make other arrangements satisfactory to the Resigning Lender to effectively assume the obligations of the Resigning Lender with respect to such Letters of Credit.  After any Administrative Agent’s resignation or removal hereunder as Administrative Agent, the provisions of this Article XII. shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under the Loan Documents.  Notwithstanding anything contained herein to the contrary, the Administrative Agent may assign its rights and duties under the Loan Documents to any of its Affiliates by giving the Borrower and each Lender prior written notice.

 

Section 12.9.  Titled Agents.

 

Each of the Lead Arrangers, the Syndication Agents and the Documentation Agents (each a “Titled Agent”) in each such respective capacity, assumes no responsibility or obligation hereunder, including, without limitation, for servicing, enforcement or collection of any of the Loans, nor any duties as an agent hereunder for the Lenders.  The titles given to the Titled Agents are solely honorific and imply no fiduciary responsibility on the part of the Titled Agents to the Administrative Agent, any Lender, any Issuing Bank, the Borrower or any other Loan Party and the use of such titles does not impose on the Titled Agents any duties or obligations greater than those of any other Lender or entitle the Titled Agents to any rights other than those to which any other Lender is entitled.

 

Section 12.10.  Specified Derivatives Contracts.

 

No Specified Derivatives Provider that obtains the benefits of Section 11.5. by virtue of the provisions hereof or of any Loan Document shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of any Loan Document other than in its capacity as a Lender and, in such case, only to the extent expressly provided in the Loan Documents.  Notwithstanding any other provision of this Article to the contrary, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Specified Derivatives Contracts unless the Administrative Agent has received written notice of such Specified Derivatives Contracts, together with such supporting documentation as the Administrative Agent may request, from the applicable Specified Derivatives Provider, as the case may be.

 

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ARTICLE XIII. MISCELLANEOUS

 

Section 13.1.  Notices.

 

Unless otherwise provided herein (including without limitation as provided in Section 9.5.), communications provided for hereunder shall be in writing and shall be mailed, telecopied, or delivered as follows:(1)

 

If to the Borrower:

 

Sunstone Hotel Partnership, LLC

120 Vantis, Suite 350
 Aliso Viejo, California 92656

Attention:                                         Bryan Giglia, CFO

Telecopier:                                    (949) 330-4078

Telephone:                                   (949) 382-3036

 

with a copy to:

 

Latham & Watkins LLP

355 South Grand Avenue

Los Angeles, CA 90071-1560

Attention:                                         Glen B. Collyer

Telephone:                                   (213) 891-8701

 

If to the Administrative Agent:

 

Wells Fargo Bank, National Association

1750 H Street, NW, #550

Washington, D.C.  20006

Attention:  Mark F. Monahan

Telecopier:                                    (202) 429-2589

Telephone:                                   (202) 303-3017

 

with a copy to

 

Wells Fargo Bank, National Association

Shared Credit Management

2859 Paces Ferry Road, Suite 1200

Atlanta, Georgia 30339

Attn:  Sandra Wheeler

Loan #:  1013605

Telecopier:                                    (770) 435-2262

Telephone:                                   (770) 435-3800

 

(1)                                 Parties to confirm notice addresses.

 

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If to the Administrative Agent under Article II.:

 

Wells Fargo Bank, National Association

Minneapolis Loan Center

MAC N9303-110

608 Second Avenue S., 11th Floor

Minneapolis, Minnesota 55402-1916

Attn:  Manager

Telecopier:                                    (866) 835-0263

Telephone:                                   (612) 316-0299

 

If to Wells Fargo, as an Issuing Bank:

 

Wells Fargo Bank, National Association

1750 H Street, NW, #550

Washington, D.C.  20006

Attention:  Mark F. Monahan

Telecopier:                                    (202) 429-2589

Telephone:                                   (202) 303-3017

 

If to JPMorgan Chase Bank, N.A., as an Issuing Bank:

 

JPMorgan Chase Bank, N.A.

10420 Highland Manor Drive, Fl 4

Tampa, FL 33610

Attn: James Alonzo

Telecopier: (856) 294-5267

Telephone: (813) 432-6339

 

If to Bank of America, N.A., as an Issuing Bank:

 

Bank of America, N.A.

Global Trade Operations

One Fleet Way, 2nd Floor

Mail Code PA6-580-02-30

Scranton, PA 18507

Telecopier:  1-800-755-8743

Telephone: 1-800-370-7519 and choose Trade product opt.  #1

Email Address:  scranton_standby_lc@bankofamerica.com

 

If to any other Lender:

 

To such Lender’s address or telecopy number as set forth in the applicable Administrative Questionnaire

 

or, as to each party at such other address as shall be designated by such party in a written notice to the other parties delivered in compliance with this Section; provided, a Lender or an Issuing Bank shall only be required to give notice of any such other address to the Administrative Agent and the Borrower.  All such notices and other communications shall be effective (i) if mailed, upon the first to occur of receipt or the expiration of 3 days after the deposit in the United States Postal Service mail, postage prepaid and addressed to the address of the Borrower or the Administrative Agent, the Issuing Banks and Lenders at

 

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the addresses specified; (ii) if telecopied, when transmitted; (iii) if hand delivered or sent by overnight courier, when delivered; or (iv) if delivered in accordance with Section 9.5. to the extent applicable; provided, however, that, in the case of the immediately preceding clauses (i), (ii) and (iii), non-receipt of any communication as of the result of any change of address of which the sending party was not notified or as the result of a refusal to accept delivery shall be deemed receipt of such communication.  Notwithstanding the immediately preceding sentence, all notices or communications to the Administrative Agent, any Issuing Bank or any Lender under Article II. shall be effective only when actually received.  None of the Administrative Agent, any Issuing Bank or any Lender shall incur any liability to any Loan Party (nor shall the Administrative Agent incur any liability to the Issuing Banks or the Lenders) for acting upon any telephonic notice referred to in this Agreement which the Administrative Agent, such Issuing Bank or such Lender, as the case may be, believes in good faith to have been given by a Person authorized to deliver such notice or for otherwise acting in good faith hereunder.  Failure of a Person designated to get a copy of a notice to receive such copy shall not affect the validity of notice properly given to another Person.

 

Section 13.2.  Expenses.

 

The Borrower agrees (a) to pay or reimburse the Administrative Agent and the Lead Arranger that is an Affiliate of the Administrative Agent for all of their respective reasonable and documented out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of, and any amendment, supplement or modification to, any of the Loan Documents (including due diligence expenses and reasonable travel expenses related to closing), and the consummation of the transactions contemplated hereby and thereby, including the reasonable fees and disbursements of one single counsel to both the Administrative Agent and such Lead Arranger and all costs and expenses of the Administrative Agent in connection with the use of IntraLinks, SyndTrak or other similar information transmission systems in connection with the Loan Documents and of the Administrative Agent in connection with the review of Properties for inclusion as Unencumbered Properties and the Administrative Agent’s other activities under Article IV. and the reasonable and documented fees and disbursements of counsel to the Administrative Agent relating to all such activities, (b) to pay or reimburse the Administrative Agent, the Issuing Banks and the Lenders for all their reasonable and documented costs and expenses incurred in connection with the enforcement, “workout” or preservation of any rights under the Loan Documents, including the reasonable fees and disbursements of their respective counsel (including the reasonable allocated fees and expenses of in-house counsel) and any payments in indemnification or otherwise payable by the Lenders to the Administrative Agent pursuant to the Loan Documents, (c) to pay, and indemnify and hold harmless the Administrative Agent, the Issuing Banks and the Lenders from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any failure to pay or delay in paying, documentary, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of any of the Loan Documents, or consummation of any amendment, supplement or modification of, or any waiver or consent under or in respect of, any Loan Document and (d) to the extent not already covered by any of the preceding subsections, to pay or reimburse the fees and disbursements of counsel to the Administrative Agent, any Issuing Bank and any Lender incurred in connection with the representation of the Administrative Agent, such Issuing Bank or such Lender in any matter relating to or arising out of any bankruptcy or other proceeding of the type described in Sections 11.1.(e) or 11.1.(f), including, without limitation (i) any motion for relief from any stay or similar order, (ii) the negotiation, preparation, execution and delivery of any document relating to the Obligations and (iii) the negotiation and preparation of any debtor-in-possession financing or any plan of reorganization of the Parent, the Borrower or any other Loan Party, whether proposed by the Parent, the Borrower, such Loan Party, the Lenders or any other Person, and whether such fees and expenses are incurred prior to, during or after the commencement of such proceeding or the confirmation or conclusion of any such proceeding; provided that the fees and expenses of external counsel shall be limited to (x) one external counsel for the

 

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Administrative Agent, (y) one external counsel for all other Lenders (and, solely in the case of a conflict of interest, additional conflicts counsel) and (z) and such local or foreign counsel of the Administrative Agent as may be necessary under the circumstances.  If the Borrower shall fail to pay any amounts required to be paid by it pursuant to this Section, the Administrative Agent and/or the Lenders may pay such amounts on behalf of the Borrower and such amounts shall be deemed to be Obligations owing hereunder.

 

Section 13.3.  Setoff.

 

Subject to Section 3.3. and in addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, the Borrower hereby authorizes the Administrative Agent, each Issuing Bank, each Lender, each Affiliate of the Administrative Agent, any Issuing Bank or any Lender, and each Participant, at any time or from time to time while an Event of Default exists, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, but in the case of an Issuing Bank, a Lender, an Affiliate of an Issuing Bank or a Lender, or a Participant, subject to receipt of the prior written consent of the Requisite Lenders exercised in their sole discretion, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Administrative Agent, such Issuing Bank, such Lender, any Affiliate of the Administrative Agent, such Issuing Bank or such Lender, or such Participant, to or for the credit or the account of the Borrower against and on account of any of the Obligations, irrespective of whether or not any or all of the Loans and all other Obligations have been declared to be, or have otherwise become, due and payable as permitted by Section 11.2., and although such Obligations shall be contingent or unmatured.  Notwithstanding anything to the contrary in this Section, if any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 3.9. and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Issuing Banks and the Lenders and (y) such Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff.

 

Section 13.4.  Litigation; Jurisdiction; Other Matters; Waivers.

 

(a)                                 EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY BETWEEN OR AMONG THE PARENT, THE BORROWER, THE ADMINISTRATIVE AGENT, ANY ISSUING BANK OR ANY OF THE LENDERS WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES OF LAW AND FACT AND WOULD RESULT IN DELAY AND EXPENSE TO THE PARTIES.  ACCORDINGLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE LENDERS, THE ADMINISTRATIVE AGENT, EACH ISSUING BANK, THE PARENT AND THE BORROWER HEREBY WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST ANY PARTY HERETO ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR BY REASON OF ANY OTHER SUIT, CAUSE OF ACTION OR DISPUTE WHATSOEVER BETWEEN OR AMONG THE PARENT, THE BORROWER, THE ADMINISTRATIVE AGENT, ANY ISSUING BANK OR ANY OF THE LENDERS OF ANY KIND OR NATURE RELATING TO ANY OF THE LOAN DOCUMENTS.

 

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(b)                                 THE PARENT AND THE BORROWER IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST THE ADMINISTRATIVE AGENT, ANY LENDER, ANY ISSUING BANK, OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY, AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY ISSUING BANK MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE PARENT, THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.  EACH PARTY FURTHER WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT FORUM AND EACH AGREES NOT TO PLEAD OR CLAIM THE SAME.  THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE BRINGING OF ANY ACTION BY THE ADMINISTRATIVE AGENT, ANY ISSUING BANK OR ANY LENDER OR THE ENFORCEMENT BY THE ADMINISTRATIVE AGENT, ANY ISSUING BANK OR ANY LENDER OF ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE JURISDICTION.

 

(c)                                  THE PROVISIONS OF THIS SECTION HAVE BEEN CONSIDERED BY EACH PARTY WITH THE ADVICE OF COUNSEL AND WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE THE PAYMENT OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER THE OTHER LOAN DOCUMENTS, THE TERMINATION OR EXPIRATION OF ALL LETTERS OF CREDIT AND THE TERMINATION OF THIS AGREEMENT.

 

Section 13.5.  Successors and Assigns.

 

(a)                                 Successors and Assigns Generally.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor the Parent may assign or otherwise transfer any of its rights or obligations hereunder or under any other Loan Document without the prior written consent of the Administrative Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of the immediately following subsection (b), (ii) by way of participation in accordance with the provisions of the immediately following subsection (d) or (iii) by way of pledge or assignment of a security interest subject to the restrictions of the immediately following subsection (e) (and, subject to the last sentence of the immediately following subsection (b), any other attempted assignment or transfer by any party hereto shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in the immediately following subsection (d) and, to the extent expressly contemplated hereby, the Related Parties of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

 

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(b)                                 Assignments by Lenders.  Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:

 

(i)                                     Minimum Amounts.

 

(A)                               in the case of an assignment of the entire remaining amount of an assigning Revolving Lender’s Revolving Commitment and/or the Revolving Loans at the time owing to it, or contemporaneous assignments to related Approved Funds that equal at least the amount specified in the immediately following clause (B) in the aggregate, or, if applicable, in the case of an assignment of the entire remaining amount of an assigning Term Loan Lender’s Term Loan Commitment and/or the Term Loans at the time owing to it, or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

 

(B)                               in any case not described in the immediately preceding subsection (A), the aggregate amount of a specific Class of Commitments (which for this purpose includes Loans outstanding thereunder) or, if the applicable Class of Commitments is not then in effect, the principal outstanding balance of the applicable Class of Loans of the assigning Lender subject to each such assignment (in each case, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $5,000,000 in the case of any assignment of a Commitment or Loans, unless each of the Administrative Agent and, so long as no Default or Event of Default shall exist, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that if, after giving effect to such assignment, the amount of the Commitments held by such assigning Lender or if the applicable Commitment is not then in effect, the outstanding principal balance of the Loans of such assigning Lender, as applicable, would be less than $5,000,000 in the case of a Commitment or Loans, then such assigning Lender shall assign the entire amount of its Commitment and the Loans at the time owing to it.

 

(ii)                                  Proportionate Amounts.  Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned, except that this clause (ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Classes of Commitments or Loans on a non-pro rata basis.

 

(iii)                               Required Consents.  No consent shall be required for any assignment except to the extent required by clause (i)(B) of this subsection (b) and, in addition:

 

(A)                               the consent of the Borrower (such consent not to be unreasonably withheld, delayed or conditioned ) shall be required unless (x) an Event of Default shall exist at the time of such assignment or (y) such assignment is to a Lender of the same Class of Commitments or Loans, an Affiliate of such a Lender or an Approved Fund in respect of such Lender; provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within 10 Business Days after having received notice thereof;

 

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(B)                               the consent of the Administrative Agent (such consent not to be unreasonably withheld, delayed or conditioned) shall be required for assignments in respect of (x) a Commitment if such assignment is to a Person that is not already a Lender of the same Class of Commitments, an Affiliate of such a Lender or an Approved Fund in respect of such Lender with respect to such a Lender or (y) any Term Loan to a Person who is not a Lender, an Affiliate of a Lender or an Approved Fund; and

 

(C)                               the consent of each Issuing Bank and the Swingline Lender shall be required for any assignment in respect of a Revolving Commitment if such assignment is to a Person that is not already a Revolving Lender.

 

(iv)                              Assignment and Assumption; Notes.  The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $4,500 for each assignment (which fee the Administrative Agent may, in its sole discretion, elect to waive), and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.  If requested by the transferor Lender or the assignee, upon the consummation of any assignment, the transferor Lender, the Administrative Agent and the Borrower shall make appropriate arrangements so that new Notes are issued to the assignee and such transferor Lender, as appropriate.

 

(v)                                 No Assignment to Certain Persons.  No such assignment shall be made to (A) the Parent, the Borrower or any of the Affiliates or Subsidiaries of the Parent or the Borrower or (B) to any Defaulting Lender or any of its Subsidiaries, or to any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B).

 

(vi)                              No Assignment to Natural Persons.  No such assignment shall be made to a natural person.

 

(vii)                           Certain Additional Payments.  In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, the Issuing Banks, the Swingline Lender and each other Lender hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swingline Loans in accordance with its Revolving Commitment Percentage.  Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under Applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.

 

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Subject to acceptance and recording thereof by the Administrative Agent pursuant to the immediately following subsection (c), from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 5.4., 13.2. and 13.9. and the other provisions of this Agreement and the other Loan Documents as provided in Section 13.10. with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender having been a Defaulting Lender.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with the immediately following subsection (d).

 

(c)                                  Register.  The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at the Principal Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement.  The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

 

(d)                                 Participations.  Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural Person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Parent, the Borrower, the Administrative Agent, the Issuing Banks and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to (w) increase such Lender’s Commitment, (x) extend the date fixed for the payment of principal on the Loans or portions thereof owing to such Lender, (y) reduce the rate at which interest is payable thereon or (z) release any Guarantor from its Obligations under the Guaranty except as contemplated by Section 8.13.(b), in each case, as applicable to that portion of such Lender’s rights and/or obligations that are subject to the participation.  The Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.10., 5.1., 5.4. (subject to the requirements and limitations therein, including the requirements under Section 3.10.(g) (it being understood that the documentation required under Section 3.10.(g) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Section 5.6. as if it were an assignee under subsection (b) of this Section; and (B) shall not be entitled to receive any greater payment under Sections 5.1. or 3.10., with respect to any participation, than its participating Lender would have been entitled to receive.  Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate

 

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the provisions of Section 5.6. with respect to any Participant.  To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 13.3. as though it were a Lender; provided that such Participant agrees to be subject to Section 3.3. as though it were a Lender.  Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations.  The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.  For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

 

(e)                                  Certain Pledges.  Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

 

(f)                                   No Registration.  Each Lender agrees that, without the prior written consent of the Borrower and the Administrative Agent, it will not make any assignment hereunder in any manner or under any circumstances that would require registration or qualification of, or filings in respect of, any Loan or Note under the Securities Act or any other securities laws of the United States of America or of any other jurisdiction.

 

(g)                                  USA Patriot Act Notice; Compliance.  In order for the Administrative Agent to comply with “know your customer” and anti-money laundering rules and regulations, including without limitation, the Patriot Act, prior to any Lender that is organized under the laws of a jurisdiction outside of the United States of America becoming a party hereto, the Administrative Agent may request, and such Lender shall provide to the Administrative Agent, its name, address, tax identification number and/or such other identification information as shall be necessary for the Administrative Agent to comply with federal law.

 

Section 13.6.  Amendments and Waivers.

 

(a)                                 Generally.  Except as otherwise expressly provided in this Agreement, (i) any consent or approval required or permitted by this Agreement or any other Loan Document to be given by the Lenders may be given, (ii) any term of this Agreement or of any other Loan Document may be amended, (iii) the performance or observance by the Parent, the Borrower, any other Loan Party or any other Subsidiary of any terms of this Agreement or such other Loan Document may be waived, and (iv) the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Requisite Lenders (or the Administrative Agent at the written direction of the Requisite Lenders), and, in the case of an amendment to any Loan Document, the written consent of each Loan Party which is party thereto.  Any term of this Agreement or of any other Loan Document relating solely to the rights or obligations of the Lenders of a particular Class, and not Lenders of any other Class, may be amended, and the performance or observance by the Borrower or any other Loan Party or any Subsidiary of any such terms may be

 

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waived (either generally or in a particular instance and either retroactively or prospectively) with, and only with, the written consent of the Requisite Class Lenders for such Class of Lenders (and, in the case of an amendment to any Loan Document, the written consent of each Loan Party which is a party thereto).  Notwithstanding anything to the contrary contained in this Section, the Fee Letter may only be amended, and the performance or observance by any Loan Party thereunder may only be waived, in a writing executed by the parties thereto.

 

(b)                                 Additional Lender Consents.  In addition to the foregoing requirements, no amendment, waiver or consent shall:

 

(i)                                     (A) increase (or reinstate) the Commitments of a Lender or subject a Lender to any additional obligations without the written consent of such Lender or (B) increase the aggregate Commitments other than in connection with an increase under Section 2.15. as provided therein without the consent of each Lender;

 

(ii)                                  reduce the principal of, or interest that has accrued or the rates of interest that will be charged on the outstanding principal amount of, any Loans or other Obligations without the written consent of each Lender directly affected thereby; provided, however, only the written consent of the Requisite Lenders shall be required for the waiver of interest payable at the Post-Default Rate, retraction of the imposition of interest at the Post-Default Rate and amendment of the definition of “Post-Default Rate”;

 

(iii)                               reduce the amount of any Fees payable to a Lender without the written consent of such Lender;

 

(iv)                              modify the definition of “Revolving Commitment Percentage” without the written consent of each Revolving Lender;

 

(v)                                 modify the definitions of “Revolving Termination Date” or clause (a) of the definition of “Termination Date” (in each case, except in accordance with Section 2.12.) or otherwise postpone any date fixed for, or forgive, any payment of principal of, or interest on, any Revolving Loans or for the payment of Fees or any other Obligations owing to the Revolving Lenders, or extend the expiration date of any Letter of Credit beyond the Revolving Termination Date (except in accordance with Section 2.2.(b)), in each case, without the written consent of each Revolving Lender directly affected thereby;

 

(vi)                              modify the definitions of “Term Loan Maturity Date” or clause (b) of the definition of “Termination Date” or otherwise postpone any date fixed for, or forgive, any payment of principal of, or interest on, any Term Loans or for the payment of Fees or any other Obligations owing to the Term Loan Lenders, in each case, without the written consent of each Term Loan Lender directly affected thereby;

 

(vii)                           while any Term Loans are outstanding, amend, modify or waive (A) Section 6.2. or any other provision of this Agreement if the effect of such amendment, modification or waiver is to require the Revolving Lenders to make Revolving Loans when such Lenders would not otherwise be required to do so, (B) the amount of the Swingline Commitment or (C) the L/C Commitment Amount, in each case, without the prior written consent of the Requisite Class Lenders of the Revolving Lenders;

 

(viii)                        modify the definition of “Pro Rata Share” or amend or otherwise modify the provisions of Section 3.2. without the written consent of each Lender;

 

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(ix)                              amend this Section or amend the definitions of the terms used in this Agreement or the other Loan Documents insofar as such definitions affect the substance of this Section, modify the definition of the term “Requisite Lenders” or (except as otherwise provided in the immediately following clause (x)), modify in any other manner the number or percentage of the Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof without the written consent of each Lender;

 

(x)                                 modify the definition of the term “Requisite Class Lenders” as it relates to a particular Class of Lenders or modify in any other manner the number or percentage of a Class of Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof, in each case, solely with respect to such Class of Lenders, without the written consent of each Lender in such Class;

 

(xi)                              release the Parent as a Guarantor or any other Guarantor from its obligations under the Guaranty (except as expressly permitted by Section 8.13.(b)) without the written consent of each Lender; provided, however, the consent of each Lender shall not otherwise be required under this clause (xi) for any amendment, waiver or consent which does not expressly provide for the release of a Guarantor (but which may indirectly result in such a release);

 

(xii)                           amend, or waive the Borrower’s compliance with, Section 2.14. without the written consent of each Revolving Lender;

 

(xiii)                        modify Section 2.15. to change the aggregate amount of Revolving Commitments and Term Loans that may be outstanding after giving effect to any increases of the Revolving Commitments or making of any Term Loans without the written consent of each Lender; or

 

(xiv)                       waive any Default or Event of Default occurring under Section 11.1.(a) without the written consent of each Lender owed the Obligations that were not paid when due resulting in such Default or Event of Default.

 

(c)                                  Amendment of Administrative Agent’s Duties, Etc.  No amendment, waiver or consent unless in writing and signed by the Administrative Agent, in addition to the Lenders required hereinabove to take such action, shall affect the rights or duties of the Administrative Agent under this Agreement or any of the other Loan Documents.  Any amendment, waiver or consent relating to Section 2.3. or the obligations of the Swingline Lender under this Agreement or any other Loan Document shall, in addition to the Lenders required hereinabove to take such action, require the written consent of the Swingline Lender.  Any amendment, waiver or consent relating to Section 2.2. or the obligations of an Issuing Bank under this Agreement or any other Loan Document shall, in addition to the Lenders required hereinabove to take such action, require the written consent of such Issuing Bank.  Any amendment, waiver or consent with respect to any Loan Document that (i) diminishes the rights of a Specified Derivatives Provider in a manner or to an extent dissimilar to that affecting the Lenders or (ii) increases the liabilities or obligations of a Specified Derivatives Provider shall, in addition to the Lenders required hereinabove to take such action, require the consent of the Lender that is (or having an Affiliate that is) such Specified Derivatives Provider.  Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Commitments of any Defaulting Lender may not be increased, reinstated or extended without the written consent of such Defaulting Lender and (y) any waiver, amendment or modification requiring the consent

 

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of all Lenders or each affected Lender that by its terms affects any Defaulting Lender more adversely than other affected Lenders shall require the written consent of such Defaulting Lender.  No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon and any amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose set forth therein.  No course of dealing or delay or omission on the part of the Administrative Agent or any Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto.  Any Event of Default occurring hereunder shall continue to exist until such time as such Event of Default is waived in writing in accordance with the terms of this Section, notwithstanding any attempted cure or other action by the Parent, the Borrower, any other Loan Party or any other Person subsequent to the occurrence of such Event of Default.  Except as otherwise explicitly provided for herein or in any other Loan Document, no notice to or demand upon the Parent, the Borrower or any other Loan Party shall entitle the Parent, the Borrower or any other Loan Party to other or further notice or demand in similar or other circumstances.

 

(d)                                 Technical Amendments.  Notwithstanding anything to the contrary in this Section 13.6., if the Administrative Agent and the Borrower have jointly identified an ambiguity, omission, mistake or defect in any provision of this Agreement or an inconsistency between provisions of this Agreement, the Administrative Agent and the Borrower shall be permitted to amend such provision or provisions to cure such ambiguity, omission, mistake, defect or inconsistency so long as to do so would not adversely affect the interests of the Lenders and the Issuing Banks.  Any such amendment shall become effective without any further action or consent of any of other party to this Agreement.

 

Section 13.7.  Nonliability of Administrative Agent and Lenders.

 

The relationship between the Borrower, on the one hand, and the Lenders, the Issuing Banks and the Administrative Agent, on the other hand, shall be solely that of borrower and lender.  None of the Administrative Agent, any Issuing Bank or any Lender shall have any fiduciary responsibilities to the Borrower and no provision in this Agreement or in any of the other Loan Documents, and no course of dealing between or among any of the parties hereto, shall be deemed to create any fiduciary duty owing by the Administrative Agent, any Issuing Bank or any Lender to any Lender, the Borrower, any Subsidiary or any other Loan Party.  None of the Administrative Agent, any Issuing Bank or any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower’s business or operations.

 

Section 13.8.  Confidentiality.

 

The Administrative Agent, each Issuing Bank and each Lender shall maintain the confidentiality of all Information (as defined below) but in any event may make disclosure: (a) to its Affiliates and to its and its Affiliates’ other respective Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any actual or proposed assignee, Participant or other transferee in connection with a potential transfer of any Commitment or participation therein as permitted hereunder, or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations; (c) as required or requested by any Governmental Authority or representative thereof or pursuant to legal process or in connection with any legal proceedings, or as otherwise required by Applicable Law; (d) to the Administrative Agent’s, such Issuing Bank’s or such Lender’s independent auditors and other professional advisors (provided they shall be notified of the confidential nature of the information); (e) in connection with the exercise of any remedies under any Loan Document (or any Specified Derivatives Contract) or any action or proceeding relating to any Loan Document (or any Specified Derivatives Contract) or the enforcement of rights hereunder or thereunder;

 

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(f) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section actually known by the Administrative Agent, such Issuing Bank or such Lender to be a breach of this Section or (ii) becomes available to the Administrative Agent, any Issuing Bank, any Lender or any Affiliate of the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower or any Affiliate of the Borrower; (g) to the extent requested by, or required to be disclosed to, any nationally recognized rating agency or regulatory or similar authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners) having or purporting to have jurisdiction over it; (h) to bank trade publications, such information to consist of deal terms and other information customarily found in such publications; (i) to any other party hereto; and (j) with the prior written consent of the Borrower.  Notwithstanding the foregoing, the Administrative Agent, each Issuing Bank and each Lender may disclose any such confidential information, without notice to the Parent, the Borrower or any other Loan Party, to Governmental Authorities in connection with any regulatory examination of the Administrative Agent, such Issuing Bank or such Lender or in accordance with the regulatory compliance policy of the Administrative Agent, such Issuing Bank or such Lender.  As used in this Section, the term “Information” means all information received from the Parent, the Borrower, any other Loan Party, any other Subsidiary or Affiliate relating to any Loan Party or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or any Issuing Bank on a nonconfidential basis prior to disclosure by the Parent, the Borrower, any other Loan Party, any other Subsidiary or any Affiliate, provided that, in the case of any such information received from the Parent, the Borrower, any other Loan Party, any other Subsidiary or any Affiliate after the date hereof, such information shall be deemed confidential unless it is clearly identified at the time of delivery as public.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

 

Section 13.9.  Indemnification.

 

(a)                                 The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Issuing Bank, each Lender, the Lead Arrangers and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnified Party”) against, and hold each Indemnified Party harmless from, and shall pay or reimburse any such Indemnified Party for, any and all losses, claims (including without limitation, Environmental Claims), damages, liabilities and related expenses (including without limitation, the fees, charges and disbursements of any counsel for any Indemnified Party (which counsel may be employees of any Indemnified Party)), incurred by any Indemnified Party or asserted against any Indemnified Party by any Person (including the Parent, the Borrower, any other Loan Party or any other Subsidiary) other than such Indemnified Party and its Related Parties, arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any other agreement, letter or instrument delivered in connection with the transactions contemplated hereby , the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by any Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Parent, the Borrower, any other Loan Party or any other Subsidiary, or any Environmental Claim related in any way to the Parent, the Borrower, any other Loan Party or any other Subsidiary, (iv) any actual or prospective claim, litigation, investigation or proceeding (an “Indemnity Proceeding”) relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Parent, the Borrower, any other Loan Party or any other Subsidiary, and regardless of whether any Indemnified Party is a party thereto, or (v) any claim (including without limitation, any

 

111

 

Environmental Claims), investigation, litigation or other proceeding (whether or not the Administrative Agent, any Issuing Bank or any Lender is a party thereto) and the prosecution and defense thereof, arising out of or in any way connected with the Loans, this Agreement, any other Loan Document, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby, including without limitation, reasonable attorneys and consultant’s fees; provided, however, that (A) such indemnity shall not, as to any Indemnified Party, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the bad faith, gross negligence or willful misconduct of such Indemnified Party and (B) in the case of legal fees and expenses, the Borrower’s reimbursement obligations hereunder shall be limited to the reasonable and documented out-of-pocket fees, disbursements and other charges of one counsel to the Indemnified Parties (other than in connection with a dispute among Indemnified Parties resulting from claims against the Administrative Agent or a Lead Arranger in its capacity or in fulfilling its role as an administrative agent or arranger or any similar role under this Agreement and the other Loan Documents) and, if reasonably necessary, a single local counsel for the Indemnified Parties in each relevant jurisdiction and with respect to each relevant specialty, and in the case of an actual or perceived conflict of interest, one additional counsel in each relevant jurisdiction to the affected Indemnified Parties similarly situated and taken as a whole.

 

(b)                                 If and to the extent that the obligations of the Borrower under this Section are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under Applicable Law.

 

(c)                                  The Borrower’s obligations under this Section shall survive any termination of this Agreement and the other Loan Documents and the payment in full in cash of the Obligations, and are in addition to, and not in substitution of, any of the other obligations set forth in this Agreement or any other Loan Document to which it is a party.

 

References in this Section 13.9. to “Lender” or “Lenders” shall be deemed to include such Persons (and their Affiliates) in their capacity as Specified Derivatives Providers.

 

Section 13.10.  Termination; Survival.

 

This Agreement shall terminate at such time as (a) all of the Commitments have been terminated, (b) all Letters of Credit have terminated or expired or been canceled (other than Extended Letters of Credit in respect of which the Borrower has satisfied the requirements to provide Cash Collateral as required in Section 2.2.(b)), (c) none of the Lenders is obligated any longer under this Agreement to make any Loans and no Issuing Bank is obligated under this Agreement to issue Letters of Credit and (d) all Obligations (other than obligations which survive as provided in the following sentence) have been paid and satisfied in full. The indemnities to which the Administrative Agent, the Issuing Bank the Lenders and their respective Related Parties are entitled under the provisions of Sections 3.10., 5.1., 5.4., 12.6., 13.2. and 13.9. and any other provision of this Agreement and the other Loan Documents, and the provisions of Section 13.4., shall continue in full force and effect and shall protect the Administrative Agent, the Issuing Bank the Lenders and their respective Related Parties (i) notwithstanding any termination of this Agreement, or of the other Loan Documents, against events arising after such termination as well as before and (ii) at all times after any such party ceases to be a party to this Agreement with respect to all matters and events existing on or prior to the date such party ceased to be a party to this Agreement.

 

112

 

Section 13.11.  Severability of Provisions.

 

If any provision of this Agreement or the other Loan Documents shall be determined by a court of competent jurisdiction to be invalid or unenforceable, that provision shall be deemed severed from the Loan Documents, and the validity, legality and enforceability of the remaining provisions shall remain in full force as though the invalid, illegal, or unenforceable provision had never been part of the Loan Documents.

 

Section 13.12.  GOVERNING LAW.

 

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.

 

Section 13.13.  Counterparts.

 

To facilitate execution, this Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts as may be convenient or required (which may be effectively delivered by facsimile, in portable document format (“PDF”) or other similar electronic means).  It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart.  All counterparts shall collectively constitute a single document.  It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto.

 

Section 13.14.  Obligations with Respect to Loan Parties and Subsidiaries.

 

The obligations of the Parent and the Borrower to direct or prohibit the taking of certain actions by the other Loan Parties and Subsidiaries as specified herein shall be absolute and not subject to any defense the Parent or the Borrower may have that the Parent or the Borrower does not control such Loan Parties or Subsidiaries.

 

Section 13.15.  Independence of Covenants.

 

All covenants hereunder shall be given in any jurisdiction independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.

 

Section 13.16.  Limitation of Liability.

 

None of the Administrative Agent, any Issuing Bank, any Lender, or any of their respective Related Parties shall have any liability with respect to, and each of the Parent and the Borrower hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, consequential or punitive damages suffered or incurred by the Parent or the Borrower in connection with, arising out of, or in any way related to, this Agreement, any of the other Loan Documents or any of the transactions contemplated by this Agreement or any of the other Loan Documents.

 

113

 

Section 13.17.  Entire Agreement.

 

This Agreement and the other Loan Documents embody the final, entire agreement among the parties hereto and supersede any and all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof and thereof and may not be contradicted or varied by evidence of prior, contemporaneous, or subsequent oral agreements or discussions of the parties hereto.  To the extent any term of this Agreement is inconsistent with a term of any other Loan Document to which the parties of this Agreement are party, the term of this Agreement shall control to the extent of such inconsistency.  There are no oral agreements among the parties hereto.

 

Section 13.18.  Construction.

 

The Administrative Agent, each Issuing Bank, the Parent, Borrower and each Lender acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by the Administrative Agent, each Issuing Bank, each Lender, the Parent and the Borrower.

 

Section 13.19.  Headings.

 

The paragraph and section headings in this Agreement are provided for convenience of reference only and shall not affect its construction or interpretation.

 

[Signatures on Following Pages]

 

114

 

IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be executed by their authorized officers all as of the day and year first above written.

 

 

	
 
    	
SUNSTONE HOTEL PARTNERSHIP, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Bryan A. Giglia
    
	
 
    	
 
    	
Name:
    	
Bryan   A. Giglia
    
	
 
    	
 
    	
Title:
    	
Chief   Financial Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SUNSTONE   HOTEL INVESTORS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John V. Arabia
    
	
 
    	
 
    	
Name:
    	
John   V. Arabia
    
	
 
    	
 
    	
Title:
    	
President   and Chief Executive Officer
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
WELLS FARGO BANK, NATIONAL   ASSOCIATION, as
    
	
 
    	
Administrative Agent, as Swingline Lender, as an   Issuing
    
	
 
    	
Bank and as a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Mark F. Monahan
    
	
 
    	
 
    	
Name:
    	
Mark F. Monahan
    
	
 
    	
 
    	
Title:
    	
Senior Vice President
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
BANK   OF AMERICA, N.A., as an Issuing Bank
    
	
 
    	
and a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Suzanne E. Pickett
    
	
 
    	
 
    	
Name:
    	
Suzanne E. Pickett
    
	
 
    	
 
    	
Title:
    	
Vice President
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
JPMORGAN   CHASE BANK, N.A., as an Issuing Bank
    
	
 
    	
and a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Rita Lai
    
	
 
    	
 
    	
Name:
    	
Rita Lai
    
	
 
    	
 
    	
Title:
    	
Authorized Signer
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
CITIBANK,   N.A., as a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Michael Chlopak
    
	
 
    	
 
    	
Name:
    	
Michael Chlopak
    
	
 
    	
 
    	
Title:
    	
Vice President
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
PNC   BANK, NATIONAL ASSOCIATION,
    
	
 
    	
as a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Darin Mortimer
    
	
 
    	
 
    	
Name:
    	
Darin Mortimer
    
	
 
    	
 
    	
Title:
    	
Senior Vice President
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
US   BANK NATIONAL ASSOCIATION,
    
	
 
    	
as a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ David W. Salisbury
    
	
 
    	
 
    	
Name:
    	
David W. Salisbury
    
	
 
    	
 
    	
Title:
    	
Vice President
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
THE   BANK OF NOVA SCOTIA, as a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Chad Hale
    
	
 
    	
 
    	
Name:
    	
Chad Hale
    
	
 
    	
 
    	
Title:
    	
Director & Execution Head, REGAL
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
COMPASS   BANK, as a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Don Byerly
    
	
 
    	
 
    	
Name:
    	
Don Byerly
    
	
 
    	
 
    	
Title:
    	
Senior Vice President
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
BRANCH   BANKING & TRUST COMPANY,
    
	
 
    	
as a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Ahaz Armstrong
    
	
 
    	
 
    	
Name:
    	
Ahaz Armstrong
    
	
 
    	
 
    	
Title:
    	
Vice President
    

 

[Signatures Continued on Next Page]

 

 

[Signature Page to Credit Agreement with Sunstone Hotel Partnership, LLC]

 

 

	
 
    	
MIDFIRST   BANK, as a Lender
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Todd G. Wright
    
	
 
    	
 
    	
Name:
    	
Todd G. Wright
    
	
 
    	
 
    	
Title:
    	
First Vice President
    

 

[End Signature Pages]

 

 

SCHEDULE I

 

Revolving Commitments

 

	
Lender
    	
 
    	
Revolving
   Commitment Amount
    	
 
    
	
Wells Fargo Bank, National Association
    	
 
    	
$
    	
51,000,000
    	
 
    
	
Bank of America, N.A.
    	
 
    	
$
    	
51,000,000
    	
 
    
	
JPMorgan Chase Bank, N.A.
    	
 
    	
$
    	
51,000,000
    	
 
    
	
CitiBank, N.A.
    	
 
    	
$
    	
44,000,000
    	
 
    
	
PNC Bank, National Association
    	
 
    	
$
    	
44,000,000
    	
 
    
	
U.S. Bank National Association
    	
 
    	
$
    	
44,000,000
    	
 
    
	
The Bank of Nova Scotia
    	
 
    	
$
    	
35,000,000
    	
 
    
	
Compass Bank
    	
 
    	
$
    	
35,000,000
    	
 
    
	
Branch Banking & Trust Company
    	
 
    	
$
    	
30,000,000
    	
 
    
	
MidFirst Bank
    	
 
    	
$
    	
15,000,000
    	
 
    
	
TOTAL
    	
 
    	
$
    	
400,000,000
    	
 
    

 

 

SCHEDULE 4.1.

 

Initial Unencumbered Properties

 

Hilton Garden Inn Chicago

Courtyard LAX

Hilton New Orleans

Hyatt Chicago

Marriott Portland

Marriott Boston Quincy

Hyatt Newport Beach

Renaissance Long Beach

Fairmont Newport Beach

Sheraton Cerritos

Renaissance LAX

Renaissance Westchester

Hyatt Regency SF

Marriott Maui (Wailea)Exhibit 10.35

 

AGREEMENT AND PLAN OF MERGER

among

KMG CHEMICALS, INC.,

as KMG

VALVES INCORPORATED OF TEXAS

as Val-Tex

KMG VICTORIA I, LLC

as Disappearing Sub

KMG VICTORIA II, LLC

as Surviving Sub

and

the Principal Shareholders and the Shareholders’ Representative named herein

Dated as of April 1, 2015

 

 

 

 

 

TABLE OF CONTENTS

 

	
 
	
Page

	
 
	
 

	
Article I DEFINITIONS
	
2

	
 
	
 

	
 
	
1.1
	
Certain Definitions
	
2

	
 
	
 
	
 
	
 

	
 
	
1.2
	
Terms Defined Elsewhere in this Agreement
	
7

	
 
	
 
	
 
	
 

	
 
	
1.3
	
Other Definitional and Interpretive Matters
	
10

	
 
	
 
	
 
	
 

	
Article II THE REVERSE MERGER
	
11

	
 
	
 

	
 
	
2.1
	
The Reverse Merger
	
11

	
 
	
 
	
 
	
 

	
 
	
2.2
	
Reverse Merger Consideration
	
11

	
 
	
 
	
 
	
 

	
 
	
2.3
	
Conversion of Securities
	
12

	
 
	
 
	
 
	
 

	
 
	
2.4
	
Exchange of Certificates
	
14

	
 
	
 
	
 
	
 

	
 
	
2.5
	
Reverse Merger Price Adjustments
	
15

	
 
	
 
	
 
	
 

	
 
	
2.6
	
Holdback Agreements
	
17

	
 
	
 
	
 
	
 

	
 
	
2.7
	
Shareholders’ Representative Fund
	
17

	
 
	
 
	
 
	
 

	
 
	
2.8
	
Certificate of Formation and Bylaws
	
18

	
 
	
 
	
 
	
 

	
 
	
2.9
	
Directors and Officers
	
18

	
 
	
 
	
 
	
 

	
 
	
2.10
	
Other Effects of Reverse Merger
	
18

	
 
	
 
	
 
	
 

	
Article III FORWARD MERGER
	
18

	
 
	
 

	
 
	
3.1
	
The Forward Merger
	
18

	
 
	
 
	
 
	
 

	
 
	
3.2
	
Conversion of Securities
	
19

	
 
	
 
	
 
	
 

	
 
	
3.3
	
Certificate of Formation and Company Agreement
	
19

	
 
	
 
	
 
	
 

	
 
	
3.4
	
Managers and Officers
	
19

	
 
	
 
	
 
	
 

	
 
	
3.5
	
Other Effects of Forward Merger
	
19

	
 
	
 
	
 
	
 

	
Article IV CLOSING AND TERMINATION
	
19

	
 
	
 

	
 
	
4.1
	
Closing Date
	
19

	
 
	
 
	
 
	
 

	
 
	
4.2
	
Termination of Agreement
	
19

	
 
	
 
	
 
	
 

	
 
	
4.3
	
Procedure Upon Termination
	
20

	
 
	
 
	
 
	
 

	
 
	
4.4
	
Effect of Termination
	
20

	
 
	
 
	
 
	
 

i

 

	
Article V REPRESENTATIONS AND WARRANTIES OF VAL-TEX AND THE PRINCIPAL SHAREHOLDERS
	
21

	
 
	
 

	
 
	
5.1
	
Organization and Good Standing
	
21

	
 
	
 
	
 
	
 

	
 
	
5.2
	
Authorization of Agreement
	
21

	
 
	
 
	
 
	
 

	
 
	
5.3
	
Capitalization
	
22

	
 
	
 
	
 
	
 

	
 
	
5.4
	
Subsidiaries
	
22

	
 
	
 
	
 
	
 

	
 
	
5.5
	
Corporate Records
	
22

	
 
	
 
	
 
	
 

	
 
	
5.6
	
Conflicts; Consents of Third Parties
	
23

	
 
	
 
	
 
	
 

	
 
	
5.7
	
Financial Statements
	
23

	
 
	
 
	
 
	
 

	
 
	
5.8
	
Title to Assets
	
24

	
 
	
 
	
 
	
 

	
 
	
5.9
	
Absence of Certain Developments
	
24

	
 
	
 
	
 
	
 

	
 
	
5.10
	
Taxes
	
25

	
 
	
 
	
 
	
 

	
 
	
5.11
	
Real Property
	
26

	
 
	
 
	
 
	
 

	
 
	
5.12
	
Personal Property Leases
	
27

	
 
	
 
	
 
	
 

	
 
	
5.13
	
Intellectual Property
	
27

	
 
	
 
	
 
	
 

	
 
	
5.14
	
Material Contracts
	
28

	
 
	
 
	
 
	
 

	
 
	
5.15
	
Labor and Employee Benefit Matters
	
30

	
 
	
 
	
 
	
 

	
 
	
5.16
	
Employee Benefit Plans
	
30

	
 
	
 
	
 
	
 

	
 
	
5.17
	
Litigation
	
32

	
 
	
 
	
 
	
 

	
 
	
5.18
	
Compliance with Laws; Permits
	
32

	
 
	
 
	
 
	
 

	
 
	
5.19
	
Environmental Matters
	
33

	
 
	
 
	
 
	
 

	
 
	
5.20
	
Insurance
	
34

	
 
	
 
	
 
	
 

	
 
	
5.21
	
Financial Advisors
	
34

	
 
	
 
	
 
	
 

	
 
	
5.22
	
Customers and Suppliers
	
34

	
 
	
 
	
 
	
 

	
 
	
5.23
	
Inventory
	
35

	
 
	
 
	
 
	
 

	
 
	
5.24
	
Affiliate Transactions; Shared Services
	
35

	
 
	
 
	
 
	
 

	
 
	
5.25
	
Banks
	
35

	
 
	
 
	
 
	
 

	
 
	
5.26
	
Terms of Service
	
35

	
 
	
 
	
 
	
 

	
Article VI REPRESENTATIONS AND WARRANTIES OF EACH PRINCIPAL SHAREHOLDER
	
36

	
 
	
 

	
 
	
6.1
	
Authorization of Agreement
	
36

ii

 

	
 
	
 
	
 
	
 

	
 
	
6.2
	
Conflicts; Consents of Third Parties
	
36

	
 
	
 
	
 
	
 

	
 
	
6.3
	
Ownership of Shares
	
37

	
 
	
 
	
 
	
 

	
 
	
6.4
	
Securities Laws Matters
	
37

	
 
	
 
	
 
	
 

	
 
	
6.5
	
Litigation
	
38

	
 
	
 
	
 
	
 

	
 
	
6.6
	
Financial Advisors
	
38

	
 
	
 
	
 
	
 

	
Article VII REPRESENTATIONS AND WARRANTIES OF KMG
	
38

	
 
	
 

	
 
	
7.1
	
Organization and Good Standing
	
38

	
 
	
 
	
 
	
 

	
 
	
7.2
	
Authorization of Agreement
	
38

	
 
	
 
	
 
	
 

	
 
	
7.3
	
Conflicts; Consents of Third Parties
	
39

	
 
	
 
	
 
	
 

	
 
	
7.4
	
Litigation
	
39

	
 
	
 
	
 
	
 

	
 
	
7.5
	
Shares
	
39

	
 
	
 
	
 
	
 

	
 
	
7.6
	
Disclosure
	
40

	
 
	
 
	
 
	
 

	
 
	
7.7
	
Financial Advisors
	
40

	
 
	
 
	
 
	
 

	
Article VIII COVENANTS
	
40

	
 
	
 

	
 
	
8.1
	
Access to Information
	
40

	
 
	
 
	
 
	
 

	
 
	
8.2
	
Conduct of the Business Pending the Closing
	
41

	
 
	
 
	
 
	
 

	
 
	
8.3
	
Consents
	
44

	
 
	
 
	
 
	
 

	
 
	
8.4
	
Governmental Consents and Approvals
	
44

	
 
	
 
	
 
	
 

	
 
	
8.5
	
Further Assurances
	
44

	
 
	
 
	
 
	
 

	
 
	
8.6
	
Publicity
	
45

	
 
	
 
	
 
	
 

	
 
	
8.7
	
Approval of Merger Agreement
	
45

	
 
	
 
	
 
	
 

	
 
	
8.8
	
No Solicitation
	
46

	
 
	
 
	
 
	
 

	
 
	
8.9
	
Directors’ and Officers’ Indemnification and Insurance
	
46

	
 
	
 
	
 
	
 

	
 
	
8.10
	
Related Party Transactions
	
47

	
 
	
 
	
 
	
 

	
 
	
8.11
	
Resignation of Officers and Directors
	
47

	
 
	
 
	
 
	
 

	
 
	
8.12
	
Offered Business
	
47

	
 
	
 
	
 
	
 

	
 
	
8.13
	
Notification
	
48

	
 
	
 
	
 
	
 

	
Article IX SHAREHOLDERS’ REPRESENTATIVE
	
48

	
 
	
 

	
 
	
9.1
	
Shareholder’s Representative
	
48

	
 
	
 
	
 
	
 

iii

 

	
Article X CONDITIONS TO CLOSING
	
51

	
 
	
 

	
 
	
10.1
	
Conditions Precedent to Obligations of the KMG Entities
	
51

	
 
	
 
	
 
	
 

	
 
	
10.2
	
Conditions Precedent to Obligations of Val-Tex and the Principal Shareholders
	
52

	
 
	
 
	
 
	
 

	
Article XI INDEMNIFICATION
	
53

	
 
	
 

	
 
	
11.1
	
Survival of Representations and Warranties
	
53

	
 
	
 
	
 
	
 

	
 
	
11.2
	
Indemnification
	
54

	
 
	
 
	
 
	
 

	
 
	
11.3
	
Indemnification Procedures
	
55

	
 
	
 
	
 
	
 

	
 
	
11.4
	
Limitations on Indemnification for Breaches or Inaccuracies of Representations and Warranties
	
56

	
 
	
 
	
 
	
 

	
 
	
11.5
	
Exclusive Remedies
	
57

	
 
	
 
	
 
	
 

	
 
	
11.6
	
Tax Matters
	
57

	
 
	
 
	
 
	
 

	
 
	
11.7
	
Tax Treatment of Indemnity Payments
	
60

	
 
	
 
	
 
	
 

	
Article XII MISCELLANEOUS
	
60

	
 
	
 

	
 
	
12.1
	
Expenses
	
60

	
 
	
 
	
 
	
 

	
 
	
12.2
	
Consent to Service of Process
	
60

	
 
	
 
	
 
	
 

	
 
	
12.3
	
Entire Agreement; Amendments and Waivers
	
61

	
 
	
 
	
 
	
 

	
 
	
12.4
	
Governing Law
	
61

	
 
	
 
	
 
	
 

	
 
	
12.5
	
Notices
	
61

	
 
	
 
	
 
	
 

	
 
	
12.6
	
Severability
	
62

	
 
	
 
	
 
	
 

	
 
	
12.7
	
Binding Effect; Assignment
	
62

	
 
	
 
	
 
	
 

	
 
	
12.8
	
Counterparts
	
62

 

 

 

iv

 

Exhibits

AResignation

BRelease

CShare Surrender Form

 

 

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (the “Agreement”) dated as of April 1, 2015, is being entered into by and among KMG Chemicals, Inc., a Texas corporation (“KMG”), Valves Incorporated of Texas, a Texas corporation (“Val-Tex”), Fred C. Leonard III, an individual (“Leonard”), Jason Councill, an individual (“Councill” and together with Leonard, the “Principal Shareholders”), Fred C. Leonard III, acting as a representative for the shareholders of Val-Tex (the “Shareholders’ Representative”), KMG Victoria I, LLC, a Texas limited liability company (“Disappearing Sub”), and KMG Victoria II, LLC, a Texas limited liability company (“Surviving Sub”).

W I T N E S S E T H:

WHEREAS, Disappearing Sub is a wholly owned subsidiary of Surviving Sub and Surviving Sub is a wholly owned subsidiary of KMG; and

WHEREAS, the Principal Shareholders are the controlling shareholders of Val-Tex;

WHEREAS, the respective boards of managers or directors of Disappearing Sub, Surviving Sub, KMG and Val-Tex deem it advisable and in the best interests of their respective owners that KMG acquire Val-Tex upon the terms and subject to the conditions provided for in this Agreement; 

WHEREAS, the board of directors of Val-Tex has unanimously approved this Agreement and the merger of Disappearing Sub with and into Val-Tex with Val-Tex surviving in exchange for the Reverse Merger Consideration (the “Reverse Merger”), and has resolved to recommend that the holders of Val-Tex’s issued and outstanding shares of common stock, par value $0.01 per share (the “Shares”), adopt this Agreement and approve the Reverse Merger;

WHEREAS, the board of managers of Surviving Sub and the board of managers of Disappearing Sub have approved the Reverse Merger and this Agreement, and Surviving Sub, as the sole member of Disappearing Sub, has approved the Reverse Merger and this Agreement;

WHEREAS, immediately following the Reverse Merger, Val-Tex will be a wholly owned subsidiary of Surviving Sub, which is a wholly owned subsidiary of KMG;

WHEREAS, the board of managers of Surviving Sub (who will be the board of directors of Val-Tex following the Reverse Merger) has unanimously approved this Agreement, the merger of Val-Tex with and into Surviving Sub with Surviving Sub surviving (the “Forward Merger”), and has resolved to recommend that the holders of Val-Tex’s issued and outstanding shares of common stock following the Reverse Merger adopt this Agreement and approve the Forward Merger;

WHEREAS, the board of managers of Surviving Sub have approved the Forward Merger and this Agreement, and KMG, as the sole member of Surviving Sub, and Surviving Sub, as the sole shareholder of Val-Tex following the Reverse Merger, have approved the Forward Merger and this Agreement;

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NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter contained, the parties hereby agree as follows:

Article I

DEFINITIONS

1.1Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1:

“Acquisition Proposal” shall mean any offer or proposal (other than an offer or proposal by KMG) relating to, or involving: (A) any acquisition or purchase from Val-Tex by any Person or “group” (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) of more than a 15% interest in the total outstanding voting securities of Val-Tex or any tender offer or exchange offer that if consummated would result in any Person or “group” (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) beneficially owning 15% or more of the total outstanding voting securities of Val-Tex or any merger, consolidation, business combination or similar transaction involving Val-Tex pursuant to which the shareholders of Val-Tex immediately preceding such transaction hold less than 85% of the equity interests in the surviving or resulting entity of such transaction; (B) any sale, lease (other than in the Ordinary Course of Business), exchange, transfer, license (other than in the Ordinary Course of Business), acquisition, or disposition of more than 15% of the assets of Val-Tex; or (C) any liquidation, dissolution, recapitalization or other significant corporate reorganization of Val-Tex. 

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

“Affiliated Group” means any affiliated group within the meaning of Section 1504 of the Code or any comparable or analogous group under applicable Law.

“Business” means Val-Tex’s lubricants business as conducted on the date hereof.

“Business Day” means any day of the year other than a Saturday or Sunday or any day on which the Federal Reserve Bank of New York is closed.

“CERCLA” means the Comprehensive Environmental Response Compensation and Liability Act, as amended.

“Code” means the Internal Revenue Code of 1986, as amended.

“Contract” means any contract, agreement, indenture, note, bond, mortgage, loan, instrument, lease, license, commitment or other arrangement, understanding, undertaking, commitment or obligation, whether written or oral.

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“Employee” means all individuals (including common law employees, independent contractors and individual consultants) who are currently employed or engaged by Val-Tex, together with individuals who are hired after the date hereof.  

“Environmental Law” means any Law as now in effect relating to protection human health, the environment or natural resources, including, but not limited to those Laws relating to (i) the discharge or emission of pollutants or contaminants to water or air, (ii) the generation, storage, handling, processing, transportation, management or disposal of waste, including hazardous waste, (iii) the storage, handling, use, transportation or management of hazardous material or substances, (iv) the Release, reporting, discharge, investigation, or remediation of hazardous substances (as that term is defined by CERCLA), hazardous material or waste, and (v) the protection of threatened or endangered species or environmentally sensitive areas.  Environmental Law includes without limitation CERCLA and analogous state statutes.

“Environmental Permit” means any Permit required by Environmental Laws for the ownership or operation of Val-Tex.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended. 

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) which is or at any time within the six (6) year period preceding the date of this Agreement would have been treated as a “single employer” with Val-Tex under Section of 414(b), (c), (m), or (o) of the Code.

 “Exchange Act” the Securities Exchange Act of 1934, as amended.

“GAAP” means United States generally accepted accounting principles in effect from time to time.

“Governmental Body” means any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, local or foreign, or any agency, instrumentality or authority thereof, or any court or arbitrator (public or private) or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law).

“Hazardous Material” means any material regulated because of its effect or potential effect on  human health, the environment, or natural resources including without limitation (i) hazardous substance as defined by any Environmental Law; (ii) any petroleum or petroleum product or any fraction thereof, oil or waste, oil, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas; (iii) any asbestos or polychlorinated biphenyls; (iv) any hazardous material, toxic substance, toxic pollutant, solid waste, hazardous waste, flammable material, radioactive material, pollutant or contaminant or words of similar meaning and regulatory effect under Environmental Law; and (v) any other chemical, material, or substance exposure to which or whose discharge, emission, disposal or Release is prohibited, limited or regulated under Environmental Law.

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“Indebtedness” of any Person means, without duplication, (i) the principal, accreted value, accrued and unpaid interest, prepayment and redemption premiums or penalties (if any), unpaid fees or expenses and other monetary obligations in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement; (iii) all obligations of such Person under leases required to be capitalized in accordance with GAAP; (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction; (v) all obligations of such Person under interest rate or currency swap transactions (valued at the termination value thereof); (vi) the liquidation value, accrued and unpaid dividends; prepayment or redemption premiums and penalties (if any), unpaid fees or expenses and other monetary obligations in respect of any redeemable preferred stock (or other equity) of such Person; (vii) all obligations of the type referred to in clauses (i) through (vi) of any Persons for the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise, including guarantees of such obligations; and (viii) all obligations of the type referred to in clauses (i) through (vii) of other Persons secured by (or for which the holder of such obligations has an existing right, contingent or otherwise, to be secured by) any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person). 

“Intellectual Property” means all right, title and interest in or relating to intellectual property, whether protected, created or arising under the laws of the United States or any other jurisdiction, including: (i) patents and applications therefor, including continuations, divisionals, and continuations-in-part thereof and patents issuing thereon, along with all reissues, reexaminations and extensions thereof (collectively, “Patents”); (ii) trademarks, service marks, trade names, service names, brand names, trade dress rights, corporate names, trade styles, logos and other source or business identifiers and general intangibles of a like nature, together with the goodwill associated with any of the foregoing, along with all applications, registrations, renewals and extensions thereof (collectively, “Marks”); (iii) internet domain names; (iv) copyrights and mask work, database and design rights, whether or not registered or published, all registrations and recordations thereof and all applications in connection therewith, along with all reversions, extensions and renewals thereof (collectively, “Copyrights”); (v) trade secrets and other proprietary confidential information (“Trade Secrets”); (vi) other intellectual property rights arising from or relating to Technology, and (vii) Contracts granting any right relating to or under the foregoing.

“Intellectual Property Licenses” means (i) any grant by Val-Tex to another Person of any right relating to or under Val-Tex’s Intellectual Property and (ii) any grant by another Person to Val-Tex of any right relating to or under any third Person’s Intellectual Property.

“Inventory” means all inventory and supplies, including raw materials, work in progress, finished goods, manufacturing supplies, spare parts, office supplies, packaging and related materials.

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“IRS” means the United States Internal Revenue Service and, to the extent relevant, the United States Department of Treasury.

“Knowledge of KMG” or any other similar knowledge qualification, means the knowledge, after due inquiry, of the executive officers of KMG.

“Knowledge of Val-Tex” or any other similar knowledge qualification, means the knowledge, after due inquiry, of (a) the executive officers of Val-Tex and (b) the Principal Shareholders.

“Law” means any foreign, federal, state or local law, statute, code, ordinance, rule, regulation, principle of common law, Order or other requirement.

“Legal Proceeding” means any judicial, administrative or arbitral action, suit, demand, audit, notice of violation, litigation, citation, mediation, investigation, inquiry, proceeding or claim (including any counterclaim) by or before a Governmental Body.

“Liability” means any Indebtedness, loss, damage, adverse claim, fine, penalty, liability or obligation (whether direct or indirect, known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, matured or unmatured, determined or determinable, disputed or undisputed, liquidated or unliquidated, or due or to become due, and whether in contract, tort, strict liability or otherwise), and including all costs and expenses relating thereto (including all fees, disbursements and expenses of legal counsel, experts, engineers and consultants and costs of investigation).

“Lien” means any lien, encumbrance, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, proxy, voting trust or agreement, transfer restriction under any equity holder or similar agreement, encumbrance or any other restriction or limitation whatsoever, including any Contract granting any of the foregoing.

“Order” means any order, injunction, judgment, doctrine, decree, ruling, writ, assessment or arbitration award of a Governmental Body.

“Ordinary Course of Business” means the ordinary and usual course of normal day-to-day operations of Val-Tex through the date hereof consistent with past practice.

“Permits” means any approvals, authorizations, consents, licenses, product registrations, variances, permits or certificates granted by or obtained from a Governmental Body, and applications therefor and renewals thereof.

“Permitted Exceptions” means (i) all defects, exceptions, restrictions, easements, rights of way and encumbrances disclosed in policies of title insurance provided to KMG prior to the date hereof; (ii) statutory Liens for current Taxes, assessments or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings; (iii) mechanics’, carriers’, workers’ and repairers’ Liens arising or incurred in the Ordinary Course of Business that are not material to the business, operations and financial condition of the Val-Tex Property so encumbered and that are not resulting from a 

5

 

 

breach, default or violation by Val-Tex of any Contract or Law; and (iv) zoning, entitlement and other land use and environmental regulations by any Governmental Body, provided, that such regulations have not been violated.

“Person” means any individual, corporation, limited liability company, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity.

“Plans” shall mean (i) all “employee benefit plans” as defined by Section 3(3) of ERISA, all specified fringe benefit plans as defined in Section 6039D of the Code, and all other bonus, incentive compensation, deferred compensation, profit sharing, stock option, stock appreciation right, stock bonus, stock purchase, employee stock ownership, savings, severance, supplemental unemployment, layoff, salary continuation, retirement, pension, health, life insurance, dental, disability, accident, group insurance, vacation, holiday, sick leave, fringe benefit or welfare plan, and any other employee compensation or benefit plan, agreement, policy, practice, commitment, Contract, or understanding (whether qualified or nonqualified, written or unwritten), and any trust, escrow or other agreement related thereto, which currently is sponsored, established, maintained or contributed to or required to be contributed by Val-Tex or for which Val-Tex has any Liability, contingent or otherwise, and (ii) all “multiemployer plans,” as that term is defined in Section 4001 of ERISA and all “employee benefit plans” (as defined in Section 3(3) of ERISA) that are subject to Title IV of ERISA or Section 412 of the Code which Val-Tex or any ERISA Affiliate has maintained or contributed to or been required to contribute to at any time within six (6) years prior to the Closing Date or with respect to which, to Val-Tex or any ERISA Affiliate has any Liability. 

“Release” means any release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment.

“Software” means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code; (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise; (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons; and (iv) all documentation, including user manuals and other training documentation related to any of the foregoing.

“Tax” or “Taxes” means (i) any federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments, including all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and similar charges imposed by the IRS or any other Taxing Authority; (ii) any interest, penalties, fines, additions to tax or additional amounts imposed by any Taxing Authority in connection with any item described in clause (i); and (iii) any Liability in respect of any items described in clauses (i) or (ii) payable by reason of Contract, assumption, transferee Liability, operation of law, Treasury 

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Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision of Law) or otherwise.

“Taxing Authority” means the IRS and any other Governmental Body responsible for the administration of any Tax.

“Tax Return” means any return, report or statement required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, combined, consolidated or unitary returns for any group of entities that includes Val-Tex, or any of its Affiliates.

“Technology” means, collectively, Software, information, designs, source code, formulae, algorithms, procedures, methods, techniques, ideas, know-how, research and development, technical data, tools, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship and other similar materials, and all recordings, graphs, drawings, reports, analyses, and other writings and registered domain names, website pages and other website development, and other tangible embodiments of the foregoing, in any form whether or not specifically listed herein, and all related technology.

“Transaction Expenses” means all of the fees and expenses of Val-Tex or the Principal Shareholders payable in connection with the Transactions, including fees and expenses of counsel, advisors, brokers, investment banks, accountants, actuaries and experts engaged by or on behalf of Val-Tex or the Principal Shareholders.

“Transactions” means the Reverse Merger, the Forward Merger and the other transactions contemplated by this Agreement.

“Treasury Regulations” means the regulations promulgated under the Code.

“WARN” means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign laws related to plant closings, relocations, mass layoffs and employment losses.

1.2Terms Defined Elsewhere in this Agreement.  For purposes of this Agreement, the following terms have meanings set forth in the sections indicated:

	
Term
	
Section

	
Agreement
	
Introductory Paragraph

	
Balance Sheet
	
5.7(a)

	
Balance Sheet Date
	
5.7(a)

	
Blue Sky Laws
	
6.4(e)

	
Cap
	
11.4(b)

	
Cash Merger Consideration
	
2.2(a)

	
Cash-Only Share Consideration
	
2.3(c)(i)

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Term
	
Section

	
Cash-Only Shareholder
	
2.3(c)

	
Closing
	
4.1

	
Closing Cash Consideration
	
2.2(b)

	
Closing Date
	
4.1

	
Closing Indebtedness
	
2.5(a)

	
Closing Inventory
	
2.5(c)

	
Closing Inventory Adjustment Amount
	
2.5(b)

	
Closing Inventory Items List
	
2.5(c)

	
Common Stock
	
2.2(a)

	
Confidentiality Agreement
	
8.1

	
Copyrights
	
1.1 (in definition of Intellectual Property)

	
Councill
	
Introductory Paragraph

	
Deductible
	
11.4(a)

	
Disappearing Sub
	
Introductory Paragraph

	
Dissenting Shares
	
2.3(f)

	
Distributed Receivables
	
8.5

	
Estimated Inventory
	
2.5(a)

	
Final Effective Time
	
3.1(b)

	
Final Surviving Entity
	
3.1(a)

	
Financial Statements
	
5.7(a)

	
Forward Certificate of Merger
	
3.1(b)

	
Forward Merger
	
3.1(a)

	
Fundamental Representations
	
11.1

	
General Survival Period
	
11.1

	
Indemnified Liabilities
	
8.9(a)

	
Indemnified Party
	
8.9(a)

	
Indemnity Holdback
	
2.6

	
Independent Accounting Firm
	
2.5(c)

	
Initial Effective Time
	
2.1(b)

	
Initial Surviving Entity
	
2.1(a)

	
Inventory
	
2.1(a)

	
Inventory Holdback
	
2.6

	
Inventory Items List
	
2.5(a)

	
KMG
	
Introductory Paragraph

	
KMG Documents
	
7.2

	
KMG Entity
	
7.2

	
KMG Indemnified Parties
	
11.2(a)

	
KMG Reports
	
7.6

	
Leonard
	
Introductory Paragraph

	
Listed Shareholders
	
8.5

	
Loss
	
11.2(a)

	
Marks
	
1.1 (in definition of Intellectual Property)

	
Material Contracts
	
5.14(a)

	
Offered Business
	
8.13

	
Owned Property
	
5.11(a)

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Term
	
Section

	
Patents
	
1.1 (in definition of Intellectual Property)

	
Paying Agent
	
2.4(a)

	
Personal Property Leases
	
5.12(a)

	
Principal Shareholder Documents
	
6.1

	
Principal Shareholders
	
Introductory Paragraph

	
Proxy
	
5.2(c)

	
Qualified Plan
	
5.16(b)

	
Real Property Lease
	
5.11(a)

	
Required Consents
	
8.3

	
Required Governmental Consents
	
8.4

	
Required Proposals
	
8.7(a)

	
Reverse Certificate of Merger
	
2.1(b)

	
Reverse Merger
	
2.1(a)

	
Reverse Merger Consideration
	
2.2(a)

	
Sale Notice
	
8.13

	
Securities Act
	
6.4(d)

	
Share Conversion Consideration
	
2.3(f)(i)

	
Shareholders’ Representative
	
Introductory Paragraph

	
Shareholders’ Representative Fund
	
2.7

	
Shareholders’ Representative Fund Amount
	
2.1(b)

	
Shareholders’ Meeting
	
8.7(a)

	
Shares
	
Recitals

	
Stock Certificates
	
2.3(e)

	
Stock Merger Consideration
	
2.2(a)

	
Straddle Period
	
11.6(c)

	
Survival Period
	
11.1

	
Surviving Sub
	
Introductory Paragraph

	
Tax Claim
	
11.6(d)(i)

	
TBOC
	
2.1(a)

	
Third Party Claim
	
11.3(c)

	
Trade Secrets
	
1.1 (in definition of Intellectual Property)

	
Unresolved Claims
	
11.3(a)

	
Unsolicited Offer
	
8.13

	
Val-Tex
	
Introductory Paragraph

	
Val-Tex Documents
	
5.2(a)

	
Val-Tex Indemnified Parties
	
11.2(b)

	
Val-Tex Permits
	
5.18(b)

	
Val-Tex Property
	
5.11(a)

	
Val-Tex Shareholders’ Approval
	
5.2(a)

 

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1.3Other Definitional and Interpretive Matters.

(a)Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply:

Calculation of Time Period.  When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded.  If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.

Dollars.  Any reference in this Agreement to $ shall mean U.S. dollars.

Exhibits/Schedules.  The Exhibits and Schedules to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement.  All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.  Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.

Gender and Number.  Any reference in this Agreement to gender shall include all genders, and words imparting the singular number only shall include the plural and vice versa.

Headings.  The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement.  All references in this Agreement to any “Section” are to the corresponding Section of this Agreement unless otherwise specified.

Herein.  The words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.

Including.  The word “including” or any variation thereof means “including, without limitation” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.

(b)The parties hereto have participated jointly in the negotiation and drafting of this Agreement and the other documents contemplated by the Transactions and, in the event an ambiguity or question of intent or interpretation arises, this Agreement and the other documents contemplated by the Transactions shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement or any provision of the other documents contemplated by the Transactions.

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Article II

THE REVERSE MERGER

2.1The Reverse Merger.

(a)Subject to the terms and conditions of this Agreement, Disappearing Sub shall be merged with and into Val-Tex (the “Reverse Merger”) in accordance with the laws of the State of Texas, including the Texas Business Organizations Code (“TBOC”), whereupon the separate existence of Disappearing Sub shall cease, and Val-Tex shall be the surviving entity of the Reverse Merger (the “Initial Surviving Entity”).

(b)As soon as practicable after satisfaction of (or to the extent permitted hereunder, waiver of) all conditions to Closing, Disappearing Sub and Val-Tex shall (i) file a certificate of merger (the “Reverse Certificate of Merger”) with the Texas Secretary of State, and make all such other filings or recordings required by the TBOC in connection with the Reverse Merger.  The Reverse Merger shall become effective upon completion of the filing of the Reverse Certificate of Merger in accordance with the relevant provisions of the TBOC (the “Initial Effective Time”).  

(c)From and after the Initial Effective Time, the Initial Surviving Entity shall possess all the assets, liabilities, rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of Disappearing Sub and Val-Tex, all as provided under the TBOC.  

(d)Prior to the Closing, Val-Tex shall (x) pay in full all of the following categories of Val-Tex’s expenses: Transaction Expenses, accounts payable, receiving accrual, sales tax, commissions payable, accrued franchise tax, accrued advertising, accrued employee retirement, accrued bonus expense, and dividends payable and (y) distribute as a dividend to its shareholders (after retaining an amount equal to all dividends declared and not paid to Val-Tex Shareholders because of Val-Tex’s inability to locate such Shareholders), all of Val-Tex’s remaining cash, accounts receivable and those assets unrelated to the Business (which may be sold prior to distribution) listed on Schedule 2.1(d).

2.2Reverse Merger Consideration.

(a)The aggregate consideration to be paid by KMG to the holders of the Shares shall be TWENTY THREE MILLION, FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($23,500,000.00) in cash plus or minus (i) the amount by which Closing Inventory exceeds or is less than, respectively, $1,500,000 as finally determined pursuant to Section 2.5, and less (ii)(A) the Closing Indebtedness as set forth in Section 2.5, and (B) $200,000 paid to the Shareholders’ Representative (“Shareholders’ Representative Fund Amount”) pursuant to Section 2.7 (collectively, the “Cash Merger Consideration”), plus SIX HUNDRED SIX THOUSAND EIGHT HUNDRED SEVENTY FIVE (606,875) shares of common stock, $.01 par value per share (“Common Stock”) of KMG (the “Stock Merger Consideration” and together with the Cash Merger Consideration, the “Reverse Merger Consideration”). 

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(b)At Closing, KMG shall pay an amount to the Paying Agent, for distribution in accordance with Sections 2.3 and 2.4, equal to TWENTY THREE MILLION, FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($23,500,000.00) plus or minus (i) the Closing Inventory Adjustment Amount, and less (ii)(A) the Closing Indebtedness as set forth in Section 2.5, and (B) the Inventory Holdback and the Indemnity Holdback as set forth in Section 2.6 and (C) the Shareholders’ Representative Fund Amount (as so adjusted, the “Closing Cash Consideration”). The amount of the Cash Consideration shall not exceed 60% of the total Reverse Merger Consideration as determined based on the closing trading price of the Common Stock on the date immediately prior to the execution of this Agreement. At Closing, KMG shall deliver to Paying Agent, for distribution in accordance with Sections 2.3 and 2.4, certificates representing the number of shares of Common Stock equal to the Stock Merger Consideration. 

(c)The Closing Cash Consideration and the Stock Merger Consideration shall be distributed to holders of Shares by the Paying Agent as provided in Sections 2.3 and 2,4, provided, that the Paying Agent shall not be obligated to deliver to holders of Shares any part of the Reverse Merger Consideration for such holder’s outstanding Shares until such holder has delivered to the Paying Agent the appropriate Share Surrender Forms in the form of Exhibit C with respect to such Shares.

2.3Conversion of Securities.

(a)At the Initial Effective Time, by virtue of the Reverse Merger and without the need for any further action on the part of the holder thereof, each one percent (1.0%) of Disappearing Sub membership interest issued and outstanding immediately prior to the Initial Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock, $0.10 par value per share, of the Initial Surviving Entity.

(b)At the Initial Effective Time, by virtue of the Reverse Merger and without any action on the part of the holders of any securities of Disappearing Sub or Val-Tex, each Share that is owned by Val-Tex as treasury stock and each Dissenting Share shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

(c)Each Share issued and outstanding immediately prior to the Initial Effective Time held by a Shareholder of Val-Tex who holds 1,000 or fewer Shares (the “Cash-Only Shareholders”) shall be converted into and represent the right to receive an amount of cash (rounded to the nearest cent), without interest, equal to the Cash-Only Share Conversion Consideration.

(i)For purposes hereof, “Cash-Only Share Conversion Consideration” means, in respect of each of the Shares an amount determined as follows: 

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(A)an amount equal to (1) the Cash Merger Consideration  plus (2) an amount equal to (x) the number of shares included in the Stock Merger Consideration multiplied by (y) the closing trading price of the Common Stock on the date immediately prior to the execution of this Agreement, divided by

(B)the aggregate number of Shares outstanding (excluding those held as treasury stock) immediately prior to the Initial Effective Time.

(d)At the Initial Effective Time, by virtue of the Reverse Merger and without the need for any further action on the part of the holder thereof (except as expressly provided herein), each Share issued and outstanding immediately prior to the Initial Effective Time and held by a Person who is not a Cash-Only Shareholder (other than any Shares to be canceled in accordance with Section 2.3(b)) shall be converted into and represent the right to receive an amount of cash (rounded to the nearest cent), without interest, and a number of shares of Common Stock (rounded to the nearest whole share) equal to the Share Conversion Consideration. 

(i)For purposes hereof, “Share Conversion Consideration” means, in respect of each of the Shares an amount determined as set forth below: 

(A)an amount equal to the Cash Merger Consideration less the aggregate Cash-Only Merger Consideration, divided by

(B)the aggregate number of Shares outstanding (excluding those held as treasury stock) and held by Shareholders immediately prior to the Initial Effective Time who are not Cash-Only Shareholders.

plus

(C)the Stock Merger Consideration, divided by

(D)the aggregate number of Shares outstanding (excluding those held as treasury stock) and held by Shareholders immediately prior to the Initial Effective Time who are not Cash-Only Shareholders.

(e)Subject to Section 2.3(f), all Shares, when converted pursuant to Section 2.3(c) or (d), shall no longer be outstanding and shall automatically be canceled and retired, and each holder of a certificate or certificates (the “Stock Certificates”) representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the respective Share Conversion Consideration or Cash-Only Share Conversion Consideration provided for in this Section 2.3.  At the Initial Effective Time, the stock transfer books of Val-Tex shall be closed, and no transfer of Shares shall be made thereafter.  If, after the Initial Effective Time, Stock Certificates are presented to the Initial Surviving Entity, they shall be canceled and exchanged as provided for in this Agreement.

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(f)Notwithstanding any provision of this Agreement to the contrary, Shares which are issued and outstanding immediately prior to the Initial Effective Time and which are held by holders who shall have complied with the provisions of Chapter 10, Subchapter H of the TBOC (the “Dissenting Shares”) shall not be converted into the right to receive the Share Conversion Consideration or the Cash-Only Share Conversion Consideration, and holders of such Dissenting Shares shall be entitled to receive payment of the fair value of such Dissenting Shares in accordance with the provisions of Chapter 10, Subchapter H of the TBOC, unless and until the applicable holder fails to comply with the provisions of Chapter 10, Subchapter H of the TBOC or effectively withdraws or otherwise loses such holder’s rights to receive payment of the fair value of such holder’s Shares under Chapter 10, Subchapter H of the TBOC. If, after the Initial Effective Time, any such holder fails to comply with the provisions of Chapter 10, Subchapter H of the TBOC or effectively withdraws or loses such right, such Dissenting Shares shall thereupon be treated as if they had been converted at the Initial Effective Time into the right to receive the Share Conversion Consideration or the Cash-Only Share Conversion Consideration. Val-Tex shall give KMG notice of any written demands for appraisal of Shares received by Val-Tex under Chapter 10, Subchapter H of the TBOC, and shall give KMG the opportunity to participate in negotiations and proceedings with respect to such demands. Val-Tex shall not, except with the prior written consent of KMG, make any payment with respect to any such demands for appraisal or offer to settle or settle any such demands.

(g)At the Initial Effective Time, by virtue of the Reverse Merger and without any action on the part of the holders of any securities of Disappearing Sub or Val-Tex, each share of Common Stock that is owned by Val-Tex shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

2.4Exchange of Certificates. 

(a)KMG and Val-Tex hereby authorize KMG (or one or more other Persons from time to time as shall be reasonably acceptable to KMG and the Shareholders’ Representative) to act as paying agent hereunder (the “Paying Agent”) for the payment of the consideration payable pursuant to Section 2.3(c) upon valid surrender of Stock Certificates and receipt of executed Share Surrender Forms.  

(b)At the Initial Effective Time, KMG shall make available, or cause to be made available to the Paying Agent (x) an amount equal to the Closing Cash Consideration to the Paying Agent and (y) certificates representing a number of shares of Common Stock equal to the Stock Merger Consideration.  Any interest, dividends, or other income earned on the investment of cash deposited by KMG with the Paying Agent in accordance with this Section 2.4(b) shall be for the account of and payable to KMG.

(c)Exchange Procedures for Stock Certificates.

(i)The Paying Agent shall mail to each holder of record of a Stock Certificate, other than Stock Certificates to be canceled or retired pursuant to Section 2.3(b), (A) a Share Surrender Form (which shall specify that delivery shall be effected, and risk of loss and title to the Stock Certificates shall pass, only upon actual delivery of 

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the Stock Certificates to the Paying Agent and shall be in a form and have such other provisions as KMG may reasonably specify); and (B) instructions for use in effecting the surrender of the Stock Certificates in exchange for the Share Conversion Consideration or the Cash-Only Share Conversion Consideration. If any Dissenting Shares cease to be Dissenting Shares pursuant to Section 2.3(e), KMG shall instruct the Paying Agent promptly after the date on which KMG becomes aware that such Dissenting Shares have ceased to be Dissenting Shares to mail to the holder of record of such Shares the Share Surrender Form and instructions referred to in the preceding sentence, with respect to such Shares.

(ii)Upon surrender of a Stock Certificate (other than Stock Certificates to be canceled or retired pursuant to Section 2.3(b)) for cancellation to the Paying Agent, together with a Share Surrender Form, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Stock Certificate shall be entitled to receive in exchange therefor its appropriate share of the Closing Cash Consideration and, in the case of Shareholders who are not Cash-Only Shareholders, the Stock Merger Consideration and the Stock Certificates so surrendered shall forthwith be canceled. No interest shall be paid or shall accrue on the cash payable upon the surrender of any Stock Certificate.  If payment is to be made to a Person other than the Person in whose name the Stock Certificate so surrendered is registered, it shall be a condition of payment that such Stock Certificate shall be properly endorsed or otherwise in proper form for transfer and that the Person requesting such payment shall pay any transfer or other Taxes required by reason of such Stock Certificate or establish to the satisfaction of the Paying Agent that such Tax has been paid or is not applicable.

(iii)If any Stock Certificate shall have been lost, stolen or destroyed, upon (A) the making of an affidavit of that fact by the Person claiming such Stock Certificate to be lost, stolen or destroyed and (B) the execution and delivery to KMG by such Person of an indemnity agreement in customary form and substance, the Paying Agent shall issue, in exchange for such lost, stolen or destroyed Stock Certificate, the appropriate share of the Closing Cash Consideration and the Stock Merger Consideration into which the Shares theretofore represented by such lost, stolen or destroyed Stock Certificate shall have been converted.

(d)Ninety (90) days following the Initial Effective Time, KMG shall be entitled to cause the Paying Agent to deliver to it any funds (including any interest received with respect thereto) and Common Stock certificates made available to the Paying Agent that have not been disbursed to holders of Stock Certificates formerly representing the Shares outstanding at the Initial Effective Time, and thereafter such holders shall be entitled to look to KMG only as a general creditor thereof with respect to cash payable and Common Stock deliverable upon due surrender of their Stock Certificates.

2.5Reverse Merger Price Adjustments.

(a)Not more than five Business Days prior to the Closing Date, Val-Tex will prepare and deliver a statement setting forth its good faith estimate of its Inventory as of the Closing Date based upon a physical inventory review of its Inventory, together with a certificate 

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of the Chief Financial Officer of Val-Tex that the Inventory was valued (the “Estimated Inventory”) in a manner consistent with Schedule 2.5 which sets forth a list of Inventory items of Val-Tex as of February 28, 2015 (the “Inventory Items List”) and a calculation of Inventory as of such date as calculated therefrom.  Val-Tex shall permit KMG and its accountants and other representatives reasonable access to Val-Tex’s properties to observe the Inventory. No later than five Business Days prior to the Closing Date, Val-Tex shall provide KMG with (i) a certificate of Val-Tex setting forth an estimate of the balance of all Indebtedness of Val-Tex as of the close of business on the day immediately preceding the Closing Date and (ii) customary pay-off letters from all holders of Indebtedness to be repaid as of or prior to the Closing.  Val-Tex shall also make arrangements reasonably satisfactory to KMG for such holders to provide to KMG recordable form mortgage and lien releases, canceled notes and other documents reasonably requested by KMG prior to the Closing such that all Liens on the assets or properties of Val-Tex that are not Permitted Exceptions shall be satisfied, terminated and discharged on or prior to the Closing Date.  On the Closing Date prior to the Closing, Val-Tex shall deliver to KMG a certificate of Val-Tex setting forth all Indebtedness of Val-Tex as of the close of business on the day immediately preceding the Closing Date that will not be paid off prior to the Closing (the “Closing Indebtedness”).

(b)At the Closing, the Closing Cash Consideration will be (i) adjusted on a dollar-for-dollar basis (the “Closing Inventory Adjustment Amount”) as follows: (x) if Estimated Inventory exceeds $1,500,000, then the Closing Cash Consideration will be increased by the amount of such excess and (y) if Estimated Inventory is less than $1,500,000, then the Closing Cash Consideration will be decreased by the amount of such deficiency.

(c)Within 60 days after the Closing Date, KMG will prepare and deliver to the Shareholders’ Representative a schedule of the Inventory of Val-Tex as of the close of business on the Closing Date (as the same may be adjusted in accordance with this subsection, the “Closing Inventory Items List”), which schedule will be prepared in a manner consistent with that used in preparing the Inventory Items List, together with its calculation of Inventory as of the close of business on the Closing Date (as the same may be adjusted in accordance with this subsection, the “Closing Inventory”).  The Shareholders’ Representative will have a period of 30 days after its receipt of the Closing Inventory Items List to review the same and to notify KMG in writing of any disputes regarding the same.  As part of such review, the Shareholders’ Representative and its advisors will have reasonable access to KMG’s work papers and to the preparers of the Closing Inventory Items List and to the books and records on which the Closing Inventory Items List is based.  If the Shareholders’ Representative notifies KMG of any dispute within 30 days after its receipt of the Closing Inventory Items List, then the parties will negotiate in good faith in an effort to resolve such dispute.  If the parties are unable to resolve such dispute within 30 days after the Shareholders’ Representative receives the Closing Inventory Items List, then either party may submit such dispute to an independent accounting firm of recognized national or regional standing mutually acceptable to KMG and the Shareholders’ Representative for resolution or, if they cannot agree, BDO Seidman LLP (in either case, the “Independent Accounting Firm”) to resolve the dispute and the Independent Accounting Firm shall make within 30 days a final determination binding upon the parties of the appropriate amount of the Closing Inventory.  If issues in dispute are submitted to the Independent Accounting Firm for resolution, (i) each party will furnish to the Independent Accounting Firm such workpapers and other documents and information relating to the disputed issues as the Independent Accounting 

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Firm may request and are available to that party or its independent public accountants, and will be afforded the opportunity to present to the Independent Accounting Firm any material relating to the determination and to discuss the determination with the Independent Accounting Firm; (ii) the determination by the Independent Accounting Firm, as set forth in a notice delivered to both parties by the Independent Accounting Firm, will be binding and conclusive on the parties; and (iii) KMG and the holders of the Shares, by reduction in the Inventory Holdback, will each bear 50% of the fees of the Independent Accounting Firm for such determination. 

(d)If the Closing Inventory, as finally determined, is (i) less than Estimated Inventory, then the Paying Agent shall pay to KMG the amount of such deficiency out of the Inventory Holdback or (ii) in excess of Estimated Inventory, then KMG will pay to the Paying Agent for distribution to the holders of the Shares the amount of such excess.

(e)All payments under subsection (d) shall be made within five Business Days after the Closing Inventory has been finally determined.  If a breach or inaccuracy of a representation or warranty by Val-Tex or the Principal Shareholders in this Agreement resulted in a reduction in the Closing Inventory, KMG shall not be entitled to indemnification under Article XI because of such breach or inaccuracy to the extent of such reduction in the Closing Inventory.

(f)Any payment to be made by the Paying Agent to KMG or by KMG to the Paying Agent under this Section shall be treated by the parties hereto as an adjustment to the Reverse Merger Consideration.

2.6Holdback Agreements.  KMG will withhold $500,000 in cash (the “Inventory Holdback”) for Reverse Merger Consideration adjustments pursuant to Section 2.5 and an additional $500,000 in cash (the “Indemnity Holdback”) for indemnification obligations of the Principal Shareholders under Sections 11.2 and 11.6 of this Agreement. The Inventory Holdback shall be used to pay Reverse Merger Consideration adjustments as calculated under Section 2.5 and the Indemnity Holdback shall be used to pay indemnity obligations of the holders of the Shares under Sections 11.2 and 11.6 of this Agreement, but shall not limit such obligations. The Inventory Holdback shall be held for a period ending upon the final determination of the Closing Inventory, whereupon the net proceeds thereof, after the payments required by Section 2.5 are made, shall be paid to the Shareholders’ Representative Fund. The Indemnity Holdback shall be held in accordance with the provisions of Section 11.3(a). 

2.7Shareholders’ Representative Fund.  KMG shall deposit or cause to be deposited into an account established by the Shareholders’ Representative, the Shareholders’ Representative Fund Amount (such amount plus any other amounts deposited in such account pursuant to the provisions of this Agreement, including any interest or other amounts earned thereon and less any disbursements therefrom in accordance with this Agreement (the “Shareholders’ Representative Fund”), for purpose of satisfying costs, expenses and/or liabilities for which any holder of Shares including the Principal Shareholders may be liable hereunder, including under Article XI, in its capacity as the Shareholders’ Representative and otherwise in accordance with this Agreement. The Shareholders’ Representative shall also be entitled to indemnification out of the proceeds of the Shareholders’ Representative 

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Fund to the extent the holders of Shares are obligated to indemnify the Shareholders’ Representative pursuant to Article IX. Upon the end of the General Survival Period, the Shareholders’ Representative shall distribute all remaining amounts in the Shareholders’ Representative Fund to the holders of Shares in proportion to the Reverse Merger Consideration to which each is entitled.

2.8Certificate of Formation and Bylaws.  At and after the Initial Effective Time until the same have been duly amended, (i) the certificate of formation of Val-Tex in effect at the Initial Effective Time shall be the certificate of formation of the Initial Surviving Entity and (ii) the bylaws of Val-Tex in effect at the Initial Effective Time shall be the bylaws of the Initial Surviving Entity.

2.9Directors and Officers.  At and after the Initial Effective Time, the officers and managers of Disappearing Sub immediately prior to the Initial Effective Time shall be the officers and directors, respectively, of the Initial Surviving Entity until their successors are duly elected or appointed and qualified.  If, at the Initial Effective Time, a vacancy shall exist on the board of directors or in any office of the Initial Surviving Entity, such vacancy may thereafter be filled in the manner provided by applicable Law.

2.10Other Effects of Reverse Merger.  The Reverse Merger shall have all further effects as specified in the applicable provisions of the TBOC.

Article III

FORWARD MERGER

3.1The Forward Merger.

(a)Subject to the terms and conditions of this Agreement, as soon as practicable following the Initial Effective Time, Surviving Sub shall be merged with and into the Initial Surviving Entity (the “Forward Merger”) in accordance with the laws of the State of Texas, including the TBOC, whereupon the separate existence of the Initial Surviving Entity shall cease, and Surviving Sub shall be the surviving entity of the Forward Merger (the “Final Surviving Entity”).

(b)As soon as practicable after the Initial Effective Time, the Initial Surviving Entity and Surviving Sub shall (i) file a certificate of merger (the “Forward Certificate of Merger”) with the Texas Secretary of State, and make all such other filings or recordings required by the TBOC in connection with the Forward Merger.  The Forward Merger shall become effective upon completion of the filing of the Forward Certificate of Merger in accordance with the relevant provisions of the TBOC (the “Final Effective Time”).  

(c)From and after the Final Effective Time, the Final Surviving Entity shall possess all the assets, liabilities, rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of Initial Surviving Entity and Surviving Sub, all as provided under the TBOC.  

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3.2Conversion of Securities.

(a)At the Final Effective Time, by virtue of the Forward Merger and without the need for any further action on the part of the holder thereof, all of the common stock, $0.10 par value per share, of the Initial Surviving Entity issued and outstanding immediately prior to the Final Effective Time shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

(b)At the Final Effective Time, by virtue of the Forward Merger and without any action on the part of the holders of any securities of Initial Surviving Entity or Surviving Sub, all of the outstanding membership interests of Surviving Sub shall be converted into one hundred percent of the membership interests of the Final Surviving Entity.

3.3Certificate of Formation and Company Agreement.  At and after the Final Effective Time until the same have been duly amended, (i) the certificate of formation of Surviving Sub in effect at the Final Effective Time shall be the certificate of formation of the Final Surviving Entity and (ii) the Company Agreement of Surviving Sub in effect at the Final Effective Time shall be the Company Agreement of the Final Surviving Entity.

3.4Managers and Officers.  At and after the Final Effective Time, persons identified as officers and managers on Schedule 3.4 shall be the officers and managers, respectively, of the Final Surviving Entity until their successors are duly elected or appointed and qualified.  If, at the Final Effective Time, a vacancy shall exist on the board of managers or in any office of the Final Surviving Entity, such vacancy may thereafter be filled in the manner provided by applicable Law.

3.5Other Effects of Forward Merger.  The Forward Merger shall have all further effects as specified in the applicable provisions of the TBOC.

Article IV

CLOSING AND TERMINATION

4.1Closing Date.  The consummation of the Transactions (the “Closing”) shall take place at the offices of Haynes and Boone, LLP located at 1221 McKinney Street, Suite 2100, Houston, Texas 77010 (or at such other place as the parties may designate in writing) at 10:00 a.m. (Central time) on May 1, 2015 if the conditions set forth in Article X have been satisfied or waived (other than conditions that by their nature are to be satisfied at Closing, but subject to the satisfaction or waiver of those conditions at such time) or such other date as mutually specified by the parties (the “Closing Date”).

4.2Termination of Agreement.  This Agreement may be terminated prior to the Closing as follows:

(a)by mutual written consent of Val-Tex and KMG;

(b)by Val-Tex or KMG if there shall be in effect a final nonappealable Order of a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting 

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the consummation of the Transactions; provided, that the right to terminate this Agreement under this Section 4.2(b) shall not be available to a party if such Order was primarily due to the failure of such party to perform any of its obligations under this Agreement;

(c)by KMG by written notice to Val-Tex if (i) any of the conditions set forth in Section 10.1 shall not have been fulfilled (or if satisfaction becomes impossible) by May 15, 2015 and shall not have been waived by KMG, unless such failure shall be due to the failure of KMG to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing, or (ii) Val-Tex or any Principal Shareholder shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, or if any representation or warranty of Val-Tex or a Principal Shareholder shall have become untrue, in either case such that the conditions set forth in Sections 10.1 would not be satisfied and such breach is incapable of being cured or, if capable of being cured, shall not have been cured within ten days following receipt by Val-Tex of notice of such breach from KMG; or

(d)by Val-Tex by written notice to KMG if (i) any of the conditions set forth in Section 10.2 shall not have been fulfilled (or if satisfaction becomes impossible) by May 15, 2015 and shall not have been waived by Val-Tex, unless such failure shall be due to the failure of Val-Tex to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing, or (ii) KMG shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, or if any representation or warranty of KMG shall have become untrue, in either case such that the conditions set forth in Sections 10.2 would not be satisfied and such breach is incapable of being cured or, if capable of being cured, shall not have been cured within ten days following receipt by KMG of notice of such breach from Val-Tex.

4.3Procedure Upon Termination. In the event of termination and abandonment by KMG or Val-Tex, or both, pursuant to Section 4.2 hereof, written notice thereof shall forthwith be given to the other party or parties, and this Agreement shall terminate, and the Transactions shall be abandoned, without further action by KMG or Val-Tex.

4.4Effect of Termination. In the event that this Agreement is validly terminated as provided herein, then each of the parties shall be relieved of their duties and obligations arising under this Agreement after the date of such termination and such termination shall be without Liability to KMG or Val-Tex; provided, that (a) the obligations of the parties set forth in this Section 4.4 and Section 8.6 and Article XII hereof shall survive any such termination and shall be enforceable hereunder; and (b) nothing in this Section 4.4 shall relieve KMG or Val-Tex of any Liability for a breach of this Agreement prior to the effective date of such termination.

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Article V

REPRESENTATIONS AND WARRANTIES OF VAL-TEX AND THE PRINCIPAL SHAREHOLDERS

Val-Tex and each Principal Shareholder, hereby jointly and severally represents and warrants to KMG that:

5.1Organization and Good Standing.  Val-Tex is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Texas and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its Business as now conducted and as currently proposed to be conducted.  Val-Tex is duly qualified or authorized to do business and is in good standing under the laws of each jurisdiction in which the conduct of its Business or the ownership of its properties requires such qualification or authorization, except where the failure to so qualify would not have, or would not reasonably be expected to have, a material adverse effect on Val-Tex.  

5.2Authorization of Agreement. 

(a)Pursuant to the TBOC and Val-Tex’s certificate of formation and bylaws, the only vote of the holders of any class or series of Val-Tex’s capital stock that shall be necessary to approve the Reverse Merger and this Agreement is the approval by two-thirds of the votes cast by the holders of the Shares (the “Val-Tex Shareholders’ Approval”).  On or prior to the date of this Agreement, the board of directors of Val-Tex has (i) determined that this Agreement, the Releases and the Transactions are advisable and in the best interests of Val-Tex and the holders of the Shares, (ii) approved and declared advisable this Agreement, the Releases and the Transactions and (iii) resolved to recommend to the holders of the Shares that they vote in favor of adopting and approving this Agreement and the Reverse Merger. 

(b)Val-Tex has all requisite power and authority and has taken all corporate action to execute and deliver this Agreement and Val-Tex has all requisite power and authority and, subject to receipt of the Val-Tex Shareholders’ Approval, has taken all corporate action to execute and deliver each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by Val-Tex in connection with the Transactions (collectively, the “Val-Tex Documents”), to perform its obligations hereunder and thereunder and to consummate the Transactions.  The execution, delivery and performance of this Agreement and each of the Val-Tex Documents, and the consummation of the Transactions, have been duly authorized and approved by all requisite action on the part of Val-Tex, subject to receipt of the Val-Tex Shareholders’ Approval.  This Agreement has been, and each of the Val-Tex Documents will be at or prior to the Closing, duly and validly executed and delivered by Val-Tex and (assuming due authorization, execution and delivery by the other parties thereto) this Agreement constitutes, and each of the Val-Tex Documents when so executed and delivered will constitute, legal, valid and binding obligations of Val-Tex enforceable against Val-Tex in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of 

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commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

(c)None of the information to be supplied by Val-Tex for inclusion in the proxy (“Proxy”) to be mailed to the holders of Shares in connection with the Shareholders’ Meeting at which Val-Tex Shareholders’ Approval will be requested, and any amendments or supplements thereto, will, at the respective times the Proxy or any amendment or supplement thereto is first mailed to the holders of Shares, at the time of the Shareholders’ Meeting and at the Closing, contain any untrue statement of a material fact or omit to state any material fact required to be made therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

5.3Capitalization.

(a)The authorized equity interests of Val-Tex consist solely of 90,831 Shares.  As of the date hereof, all of the Shares are held beneficially and of record by the Persons listed on Schedule 5.3 hereto in the amounts set forth next to their respective names, and Val-Tex has 26 shareholders.  All of the issued and outstanding Shares were duly authorized for issuance and are validly issued, fully paid and non-assessable and were not issued in violation of any purchase or call option, right of first refusal, subscription right, preemptive right or any similar rights.

(b)There are no existing options, warrants, calls, rights or Contracts to which Val-Tex is a party requiring, and there are no securities of Val-Tex outstanding which upon conversion or exchange would require, the issuance, sale or transfer of any additional Shares or other equity interests of Val-Tex or other securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase Shares or other equity interests of Val-Tex.  Except as set forth on Schedule 5.3(b), there are no obligations, contingent or otherwise, of Val-Tex to (i) repurchase, redeem or otherwise acquire any Shares or (ii) provide material funds to, or make any material investment in (in the form of a loan, capital contribution or otherwise), or provide any guarantee with respect to the obligations of, any Person.  Except as set forth on Schedule 5.3(b), there are no outstanding equity appreciation, phantom equity, profit participation or similar rights with respect to Val-Tex.  There are no bonds, debentures, notes or other Indebtedness of Val-Tex having the right to vote or consent (or, convertible into, or exchangeable for, securities having the right to vote or consent) on any matters on which shareholders (or other equity holders) of Val-Tex may vote.  There are no voting agreements, voting trusts, irrevocable proxies or other Contracts or understandings to which Val-Tex is a party or is bound with respect to the voting or consent of any Shares.

5.4Subsidiaries. Except as set forth on Schedule 5.4, Val-Tex does not own, directly or indirectly, any capital stock or equity securities of any Person.

5.5Corporate Records.

(a)Val-Tex has delivered to KMG true, correct and complete copies of the certificate of formation (certified by the Secretary of State) and bylaws (certified by the secretary, assistant secretary or other appropriate officer) of Val-Tex, in each case as amended and in effect on the date hereof, including all amendments thereto.

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(b)The minute books of Val-Tex previously made available to KMG contain true, correct and complete records of all meetings and accurately reflect all other action of the shareholders and board of directors (including committees thereof) of Val-Tex.  The stock certificate books, if any, and transfer ledgers of Val-Tex previously made available to KMG are true, correct and complete.  All transfer Taxes levied, if any, or payable with respect to all transfers of equity of Val-Tex prior to the date hereof have been paid and appropriate transfer Tax stamps affixed.

5.6Conflicts; Consents of Third Parties.

(a)Except as set forth on Schedule 5.6(a), none of the execution and delivery by Val-Tex of this Agreement or the Val-Tex Documents, the consummation of the Transactions, or compliance by Val-Tex with any of the provisions hereof or thereof will (i) conflict with, or result in any violation or breach of (that in either case would have a material adverse effect on Val-Tex), conflict with or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of a material benefit under any provision of (A) the certificate of formation, bylaws, or other organizational documents of Val-Tex; (B) any Contract or Val-Tex Permit to which Val-Tex is a party or by which any of its assets are bound; (C) any Order applicable to Val-Tex or by which any of its assets are bound; or (D) any applicable Law; or (ii) result in the creation or imposition of any Lien other than Permitted Exceptions on the assets of Val-Tex.  

(b)Except as set forth on Schedule 5.6(b), no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of Val-Tex in connection with (i) the execution and delivery of this Agreement or the Val-Tex Documents, the compliance by Val-Tex with any of the provisions hereof and thereof, the consummation of the Transactions or the taking by Val-Tex of any other action contemplated hereby or thereby, or (ii) the continuing validity and effectiveness immediately following the Closing of any Contract or Val-Tex Permit.

5.7Financial Statements.

(a)Val-Tex has delivered to KMG copies of (i) the audited consolidated balance sheets of Val-Tex as at May 31, 2014 and the related audited consolidated statements of income and cash flows of Val-Tex for the twelve-month period then ended, (ii) the unaudited consolidated balance sheet of Val-Tex as at May 31, 2012 and 2013 and the related consolidated statements of income and cash flows of Val-Tex for the twelve-month periods then ended, and (iii) the unaudited consolidated balance sheets of Val-Tex as at February 28, 2015 and the related unaudited consolidated statements of income and cash flows of Val-Tex for the nine-month period then ended (such statements referred to in subsections (i), (ii) and (iii) immediately above, including the related notes and schedules thereto, are referred to herein as the “Financial Statements”).  Each of the Financial Statements is complete and correct in all material respects and fairly presents the consolidated financial position, results of operations and cash flows of Val-Tex as at the dates and for the periods indicated therein. The audited financial statements described in (i) above have been prepared in accordance with GAAP consistently applied without modification of the accounting principles used in the preparation thereof throughout the periods presented. The unaudited financial statements described in (ii) and (iii) above have been 

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prepared in accordance with tax accounting consistently applied without modification of the accounting principles used in the preparation thereof throughout the periods presented. The unaudited consolidated balance sheet of Val-Tex as of February 28, 2015 is referred to herein as the “Balance Sheet” and February 28, 2015 is referred to herein as the “Balance Sheet Date.” 

(b)All books, records and accounts of Val-Tex are accurate and complete and are maintained in all material respects in accordance with good business practice and all applicable Laws.  Val-Tex maintains systems of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit the preparation of financial statements and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the actual levels at reasonable intervals and appropriate action is taken with respect to any differences. Val-Tex has no Liabilities, except (i) those which are adequately reflected or reserved against in the Financial Statements as of the Balance Sheet Date, and (ii) those which have been incurred in the Ordinary Course of Business since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount.

(c)Val-Tex has no Knowledge of (i) any significant deficiencies in the design or operation of internal controls which could adversely affect Val-Tex’s ability to record, process, summarize and report financial data, (ii) any material weaknesses in internal controls or  (iii) any fraud, whether or not material, that involves management or other Employees who have a significant role in Val-Tex’s internal controls.

5.8Title to Assets. Val-Tex owns and has good and valid title to each of its assets free and clear of Liens, except for Permitted Exceptions.  The personal property used in or held for use by Val-Tex is sufficient for KMG to conduct the Business from and after the Closing Date without interruption and in the Ordinary Course of Business, as it has been conducted by Val-Tex. Except as set forth on Schedule 5.8, (a) Val-Tex has performed all current maintenance and repair obligations for its assets pursuant to the terms of the Contracts and has not deferred the performance of any such obligations and (b) its assets are in good operating condition and repair, and none of its assets are in need of maintenance or repairs except for ordinary, routine maintenance or repairs that are not material.

5.9Absence of Certain Developments. Except as expressly contemplated by this Agreement or as set forth on Schedule 5.9 or Schedule 2.1(d), since the Balance Sheet Date, (i) Val-Tex has conducted the Business only in the Ordinary Course of Business, (ii) Val-Tex has not taken any action that would be prohibited by Section 8.2(b) if proposed to be taken by Val-Tex after the date of this Agreement, and (iii) there has not been any material adverse change in the Business, operations, assets, results of operations or condition (financial or otherwise) of Val-Tex, and no event has occurred or circumstances exist that may result in such a material adverse change.

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5.10Taxes.

(a)(i) Except as set forth on Schedule 5.10, all Tax Returns required to be filed by or on behalf of each of Val-Tex and any Affiliated Group of which Val-Tex is or was a member have been duly and timely filed with the appropriate Taxing Authority in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns are true, complete and correct in all material respects; and (ii) all Taxes payable by or on behalf of each of Val-Tex and any Affiliated Group of which Val-Tex is or was a member have been fully and timely paid.  With respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due or owing, Val-Tex has made due and sufficient accruals for such Taxes in the Financial Statements and its books and records.  All required estimated Tax payments sufficient to avoid any underpayment penalties or interest have been timely made by or on behalf of Val-Tex.

(b)Val-Tex has complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes and has duly and timely withheld and paid over to the appropriate Taxing Authority all amounts required to be so withheld and paid under all applicable Laws.

(c)KMG has received complete copies of (i) all federal, state, local and foreign income or franchise Tax Returns of Val-Tex relating to the taxable periods since May 31, 2010 and (ii) any audit report issued within the last three years relating to any Taxes due from or with respect to Val-Tex.  

(d)Schedule 5.10 lists (i) all types of Taxes paid, and all types of Tax Returns filed by or on behalf of Val-Tex, and (ii) all of the jurisdictions that impose such Taxes or with respect to which Val-Tex has a duty to file such Tax Returns.  No claim has been made by a Taxing Authority in a jurisdiction where Val-Tex does not file Tax Returns such that it is or may be subject to Taxation by that jurisdiction.  

(e)All deficiencies asserted or assessments made as a result of any examinations by any Taxing Authority of the Tax Returns of, or including, Val-Tex have been fully paid, and there are no other audits or investigations by any Taxing Authority in progress, nor has Val-Tex received any notice from any Taxing Authority that it intends to conduct such an audit or investigation.  No issue has been raised by a Taxing Authority in any prior examination of Val-Tex which, by application of the same or similar principles, could reasonably be expected to result in a proposed deficiency for any subsequent taxable period.

(f)Neither Val-Tex nor any Subsidiary is a party to any Tax sharing, allocation, indemnity or similar agreement or arrangement (whether or not written) pursuant to which it will have any obligation to make any payments after the Closing.

(g)There is no Contract, agreement, plan or arrangement covering any Person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by KMG, Val-Tex or any of their respective Affiliates by reason of Section 280G of the Code.

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(h)Neither Val-Tex nor any Subsidiary is subject to any private letter ruling of the IRS or comparable rulings of any Taxing Authority.

(i)There are no Liens, other than Liens that are Permitted Exceptions, as a result of any unpaid Taxes upon any of the assets of Val-Tex. 

(j)Val-Tex has never been a member of any consolidated, combined, affiliated or unitary group of corporations for any Tax purposes other than a group in which Val-Tex is the common parent.

(k)There is no taxable income of Val-Tex that will be required under applicable Tax Law to be reported by KMG or any of its Affiliates, including Val-Tex, for a taxable period beginning after the Closing Date which taxable income was realized (and reflects economic income) arising prior to the Closing Date.

(l)Val-Tex has disclosed on their federal income Tax Returns all positions taken therein that could give rise to substantial understatement of federal income tax within the meaning of Section 6662 of the Code.  Val-Tex has not participated in any “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b).

(m)Except as set forth on Schedule 5.10, there is no material property or obligation of Val-Tex, including uncashed checks to vendors, customers, or employees, non-refunded overpayments, or unclaimed subscription balances, that is escheatable or reportable as unclaimed property to any state or municipality under any applicable escheatment or unclaimed property laws.  

(n)All of the property of Val-Tex that is subject to property Tax has been properly listed and described on the property tax rolls of the appropriate Taxing Authority.

5.11Real Property.

(a)Schedule 5.11(a) sets forth a complete list of (i) all real property and interests in real property, including improvements thereon and easements appurtenant thereto owned in fee by Val-Tex (collectively, the “Owned Properties”), and (ii) all real property and interests in real property leased by Val-Tex (collectively, the “Real Property Leases” and, together with the Owned Properties, being referred to herein collectively as the “Val-Tex Properties”) as lessee or lessor, including a description of each such Real Property Lease (including the name of the third party lessor or lessee and the date of the lease or sublease and all amendments thereto).  Val-Tex has good and marketable fee title to all Owned Property free and clear of all Liens of any nature whatsoever, except Permitted Exceptions.  Val-Tex Properties constitute all interests in real property currently used, occupied or currently held for use in connection with the Business of Val-Tex and which are necessary for the continued operation of the Business as currently conducted.  All of Val-Tex Properties and buildings, fixtures and improvements thereon (i) are in good operating condition without structural defects, and all mechanical and other systems located thereon are in good operating condition, and no condition exists requiring material repairs, alterations or corrections and (ii) are suitable, sufficient and appropriate in all material respects for their current and contemplated uses.  None of the improvements located on Val-Tex Properties constitute a legal non-conforming use or otherwise 

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require any special dispensation, variance or special permit under any Laws.  Val-Tex has delivered to KMG true, correct and complete copies of (i) all deeds, title reports and surveys for the Owned Properties and (ii) the Real Property Leases, together with all amendments, modifications or supplements, if any, thereto.  Val-Tex Properties are not subject to any leases, rights of first refusal, options to purchase or rights of occupancy, except the Real Property Leases set forth on Schedule 5.11(a).

(b)Val-Tex has all certificates of occupancy and Permits of any Governmental Body necessary or useful for the current use and operation of each Val-Tex Property, and Val-Tex has fully complied with all material conditions of the Permits applicable to them.  No default or violation, or event that with the lapse of time or giving of notice or both would become a default or violation, has occurred in the due observance of any Permit.

(c)There does not exist any actual or, to the Knowledge of Val-Tex, threatened or contemplated condemnation or eminent domain proceedings that affect any Val-Tex Property or any part thereof, and Val-Tex has not received any notice, oral or written, of the intention of any Governmental Body or other Person to take or use all or any part thereof.

(d)Val-Tex has not received any notice from any insurance company that has issued a policy with respect to any Val-Tex Property requiring performance of any structural or other repairs or alterations to such Val-Tex Property.

(a)Val-Tex does not own, hold, nor is it obligated under or a party to, any option, right of first refusal or other contractual right to purchase, acquire, sell, assign or dispose of any real estate or any portion thereof or interest therein.

5.12Personal Property Leases.

(a)Schedule 5.12 sets forth all leases of personal property (“Personal Property Leases”) involving annual payments in excess of $5,000 relating to personal property used by Val-Tex or to which Val-Tex is a party or by which Val-Tex is bound.  Val-Tex has delivered to KMG true, correct and complete copies of the Personal Property Leases, together with all amendments, modifications or supplements thereto.  

5.13Intellectual Property.

(a)Schedule 5.13(a) sets forth an accurate and complete list of all internet domain names, Patents, registered Marks, pending applications for registration of Marks, unregistered Marks, registered Copyrights, and pending applications for registration of Copyrights included in Val-Tex’s Intellectual Property.  Schedule 5.13(a) lists (i) the jurisdictions in which each such item of Val-Tex’s Intellectual Property has been issued, registered, otherwise arises or in which any such application for such issuance and registration has been filed and (ii) the registration or application number and date, as applicable.  

(b)Except as set forth on Schedule 5.13(b), Val-Tex is the sole and exclusive owner of all right, title and interest in and to all of Val-Tex’s Technology and Val-Tex’s Intellectual Property, including each of the Copyrights in any works of authorship prepared by or for Val-Tex that resulted from or arose out of any work performed by or on behalf of Val-Tex or 

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by any Employee, former Employee, officer, consultant or contractor of Val-Tex, in each case, free and clear of all obligations to others (except for those specified licenses included in Schedule 5.13(b)).  

(c)Val-Tex’s Intellectual Property and Val-Tex’s Technology, the design, development, manufacturing, licensing, marketing, distribution, offer for sale, sale or use or maintenance of any products and services in connection with the Business as presently and as currently proposed to be conducted, and the present and currently proposed business practices, methods and operations of Val-Tex do not infringe, constitute an unauthorized use of, misappropriate, dilute or violate any Intellectual Property or other right of any Person.  Val-Tex’s Intellectual Property, the Intellectual Property and Technology licensed to Val-Tex under the Intellectual Property Licenses included in the Contracts and Val-Tex’s Technology is set forth on Schedule 5.13(c) and includes all of the Intellectual Property and Technology necessary and sufficient to enable Val-Tex to conduct the Business in the manner in which such Business is currently being conducted and proposed to be conducted.  No other Intellectual Property or Technology, other than the Intellectual Property and Technology set forth on Schedule 5.13(c), is required to conduct the Business in the manner in which such Business is currently being conducted and proposed to be conducted.

(d)Except with respect to licenses of commercial off-the-shelf Software available on reasonable terms, and except pursuant to the Intellectual Property Licenses listed in Schedule 5.13(d), Val-Tex is not required, obligated, or under any Liability whatsoever, to make any payments by way of royalties, fees or otherwise to any owner, licensor of, or other claimant to, any of Val-Tex’s Intellectual Property, or any other Person, with respect to the use thereof or in connection with the conduct of the Business as currently conducted or proposed to be conducted.

(e)Val-Tex has taken reasonable security measures to protect the secrecy, confidentiality and value of all the Trade Secrets included in Val-Tex’s Intellectual Property and any other non-public, proprietary information included in Val-Tex’s Technology, which measures are reasonable in the industry in which the Business operates.  

(f)The consummation of the Transactions will not result in the loss or impairment of KMG’s right to own or use any of Val-Tex’s Intellectual Property or Val-Tex’s Technology.

5.14Material Contracts.

(a)Schedule 5.14(a) sets forth, by reference to the applicable subsection of this Section 5.14(a), all of the following Contracts of Val-Tex, complete and accurate copies of which have been provided to KMG (such Contracts, together with all Contracts for the Val-Tex Property and the Personal Property Leases, the “Material Contracts”):

(i)Contracts with any labor union or association representing any Employee;

(ii)Contracts for the sale of any of the assets of Val-Tex other than in the Ordinary Course of Business or for the grant to any Person of any preferential rights to purchase any of Val-Tex’s assets, including all Contracts that require Val-Tex to 

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purchase or sell a stated portion of the requirements or outputs of Val-Tex or that contain “take or pay” provisions;

(iii)Contracts that relate to the acquisition of any business, a material amount of stock or assets of any other Person or any real property;

(iv)Contracts for joint ventures, strategic alliances, partnerships, licensing arrangements, or sharing of profits, losses, costs, Liabilities, or proprietary information with any Person;

(v)Contracts containing covenants of Val-Tex not to compete in any line of business or with any Person in any geographical area or not to solicit or hire any Person with respect to employment or covenants of any other Person not to compete with Val-Tex in any line of business or in any geographical area or not to solicit or hire any Person with respect to employment;

(vi)Contracts imposing a Lien on any of Val-Tex’s assets, including loan or credit agreements, sale and leaseback agreements, purchase money obligations incurred in connection with the acquisition of property, mortgages, pledge agreements, security agreements, or conditional sale or title retention agreements;

(vii)Contracts providing for payments by or to Val-Tex in excess of $20,000 in any fiscal year or $60,000 in the aggregate during the term thereof that are not cancellable without penalty, fees or other payment without more than 30 days’ notice;

(viii)Contracts providing for the purchase, distribution, or sale of lubricant products by Val-Tex;

(ix)Contracts providing for the payment by Val-Tex of severance, retention, change in control or other similar payments;

(x)Contracts for the employment of any individual on a full-time, part-time or consulting or other basis; 

(xi)material management Contracts and Contracts with independent contractors or consultants (or similar arrangements) that are not cancelable without penalty or further payment and without more than 30 days’ notice;

(xii)Contracts with any Governmental Body;

(xiii)all Permits that are required for the use or operation of the Business or Val-Tex Property, including all Permits required by, or issued under, any applicable Environmental Law;

(xiv)powers of attorney currently effective and outstanding;

(xv)broker, distributor, manufacturer’s representative, agency, sales promotion, market research, marketing consulting and advertising Contracts;

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(xvi)outstanding Contracts of indebtedness, guaranty, surety or indemnification, whether direct or indirect, including all Contracts that provide for the assumption of any Tax, environmental or other Liability of any Person; and

(xvii)Contracts that are material to Val-Tex or the operation of the Business and not previously disclosed pursuant to this Section 5.14(a).

(b)Each of the Material Contracts is in full force and effect and is the legal, valid and binding obligation of Val-Tex and of the other parties thereto, enforceable against each of them in accordance with its terms and, upon consummation of the Transactions, shall, except as otherwise set forth on Schedule 5.14(b), continue in full force and effect in all material respects without penalty or other adverse consequence.  Val-Tex is not in material default under any Material Contract, nor, to the Knowledge of Val-Tex, is any other party to any Material Contract in material breach of or default thereunder, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a breach or default by Val-Tex or any other party thereunder.  There are no disputes pending or, to the Knowledge of Val-Tex, threatened under any Material Contract.

5.15Labor and Employee Benefit Matters.

(a)No Employees of Val-Tex are represented by any labor organization.  No labor organization or group of Employees of Val-Tex has made a pending demand for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the Knowledge of Val-Tex, threatened to be brought or filed, with the National Labor Relations Board or other labor relations tribunal.  There is no organizing activity involving Val-Tex pending or, to the Knowledge of Val-Tex, threatened by any labor organization or group of Employees.

(b)There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances or other labor disputes pending or, to the Knowledge of Val-Tex, threatened against or involving Val-Tex.  There are no unfair labor practice charges, grievances or complaints pending or, to the Knowledge of Val-Tex, threatened by or on behalf of any Employee or group of Employees of Val-Tex.  

(c)There are no complaints, charges or claims against Val-Tex pending or, to Knowledge of Val-Tex, threatened that could be brought or filed, with any Governmental Body based on, arising out of, in connection with or otherwise relating to the employment or termination of employment of or failure to employ, any individual at Val-Tex.  Val-Tex is in compliance with all Laws relating to the employment of labor, including all such Laws relating to wages, hours, WARN and any similar state or local “mass layoff” or “plant closing” law, collective bargaining, discrimination, civil rights, safety and health, workers’ compensation and the collection and payment of withholding or social security Taxes and any similar Tax except for immaterial non-compliance.  There has been no “mass layoff” or “plant closing” (as defined by WARN) within the six (6) months prior to Closing.

5.16Employee Benefit Plans.

(a)Schedule 5.16(a) contains a true and complete list of all Plans.

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(b)Neither Val-Tex nor any ERISA Affiliate maintains or is obligated to provide benefits under any life, medical or health plan (other than as an incidental benefit under a Plan intended to be “qualified” within the meaning of Section 401(a) of the Code (“Qualified Plan”)) which provides benefits to retirees or other terminated employees other than benefit continuation rights under the Consolidated Omnibus Budget Reconciliation of 1985, as amended.

(c)Neither Val-Tex nor any ERISA Affiliate has at any time contributed to or has any obligation to contribute to or has any Liability with respect to any “multiemployer plan”, as that term is defined in Section 4001 of ERISA or any “employee benefit plan” subject to Title IV of ERISA or Section 412 of the Code.  No Plan is a “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA.

(d)Each of the Plans and its administration is currently in compliance with ERISA and the Code and all other applicable Laws and with any applicable collective bargaining agreement in all material respects, and to the Knowledge of Val-Tex, no statement, either written or oral, has been made by Val-Tex or any Person with regard to any Plan that is not in accordance with the terms of such Plan.

(e)Val-Tex has performed, in all material respects, all of its obligations under all Plans, and all contributions and other payments required to be made by Val-Tex to any Plan with respect to any period ending before or at or including the Closing Date have been made or reserves adequate for such contributions or other payments have been or will be set aside therefor and have been or will be reflected in Val-Tex’s Financial Statements.

(f)No transaction contemplated by this Agreement will result in material Liability to the PBGC under Section 302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or otherwise, with respect to Val-Tex or any ERISA Affiliate.

(g)There are no pending, or, to the Knowledge of Val-Tex, threatened claims by or on behalf of any Plan, or by any Person covered thereby, other than ordinary claims for benefits submitted by participants or beneficiaries, which, individually or in the aggregate, could result in material Liability on the part of KMG or any fiduciary of any such Plan.

(h)No employer securities, employer real property or other employer property is included in the assets of any Plan.

(i)Neither Val-Tex nor any ERISA Affiliate has engaged in or knowingly permitted to occur and, to the Knowledge of Val-Tex, no other party has engaged in or permitted to occur any transaction prohibited by Section 406 of ERISA or “prohibited transaction” under Section 4975(c) of the Code with respect to any Plan, except for any transactions which are exempt under Section 408 of ERISA or Section 4975 of the Code.

(j)Except for any formal written qualification requirement with respect to which the remedial amendment period set forth in Section 401(b) of the Code, and any regulations, rulings or other IRS releases thereunder, has not expired, (i) each Plan that is intended to be a Qualified Plan has received a favorable determination letter from the IRS and is qualified in form and operation under Section 401(a) of the Code, and each trust for each such Plan is exempt from federal income tax under Section 501(a) of the Code, and (ii) no event has 

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occurred or circumstance exists that gives rise to disqualification or loss of tax-exempt status of any such Plan or trust.

(k)Each Plan can be terminated without payment of any additional contribution or amount and, except for any vesting of benefits of a Qualified Plan, without the vesting or acceleration of any benefits promised by such Plan.

(l)To the Knowledge of Val-Tex, no event has occurred or circumstance exists that could result in a material increase in premium costs of Plans that are insured, or a material increase in benefit costs of such Plans that are self-insured.

(m)Val-Tex has the right to modify and terminate benefits as to retirees (other than pensions) with respect to both retired and active Employees.

(n)The consummation of the Transactions will not result in the payment, vesting, or acceleration of any benefit, assuming that no Employee incurs a termination of employment or reduction in hours, and no Plan is terminated, in connection with the Transactions.

(o)Each statutory and non-statutory stock option and each stock appreciation right granted by Val-Tex was granted with a per share exercise price equal to or greater than the per share fair market value of Val-Tex’s underlying common stock on the grant date thereof and no such option or stock appreciation right has a feature for the deferral of compensation within the meaning of Section 409A of the Code and related rules and regulations. Val-Tex has operated all nonqualified deferred compensation plans in good faith compliance with Section 409A of the Code and the regulations and other guidance issued thereunder.

5.17Litigation.  Except as set forth in Schedule 5.17, there is no Legal Proceeding pending or, to the Knowledge of Val-Tex, threatened against Val-Tex before any Governmental Body, nor to the Knowledge of Val-Tex is there any reasonable basis for any such Legal Proceeding.  Except as set forth on Schedule 5.17, Val-Tex is not subject to any Order, and Val-Tex is not in breach or violation of any Order.  Except as set forth on Schedule 5.17, Val-Tex is not engaged in any Legal Proceeding to recover monies due it or for damages sustained by it.  There are no Legal Proceedings pending or, to the Knowledge of Val-Tex, threatened against Val-Tex or to which Val-Tex is otherwise a party relating to this Agreement or any Val-Tex Document or the Transactions.

5.18Compliance with Laws; Permits.

(a)Val-Tex has complied and is in compliance with (i) all Laws applicable to its operations or the Business, (ii) all applicable United States export control laws and regulations, and (iii) the United States Foreign Corrupt Practices Act and all other applicable anti-bribery or anti-corruption Laws of any jurisdiction.  Val-Tex has not received any written or other notice of or been charged with the material violation of any Laws.  To the Knowledge of Val-Tex, Val-Tex is not under investigation with respect to the violation of any Laws and there are no facts or circumstances which could form the basis for any such violation.  

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(b)Schedule 5.18(b) contains a list of all Permits which are required for the operation of the Business (“Val-Tex Permits”).  Val-Tex currently has all Permits which are required for the operation of the Business as presently conducted, other than those the failure of which to possess is immaterial to Val-Tex.  Val-Tex is not in default or violation, and no event has occurred which, with notice or the lapse of time or both, would constitute a material default or violation of any term, condition or provision of any Val-Tex Permit.  

5.19Environmental Matters. Except as set forth on Schedule 5.19 hereto:

(a)Val-Tex’s operation of the Business and Val-Tex Property is and has been in compliance with all applicable Environmental Laws, which compliance includes obtaining, maintaining in good standing and complying with all Environmental Permits and no Legal Proceeding is pending or, to the Knowledge of Val-Tex, threatened to revoke, modify or terminate any such Environmental Permit, and no facts, circumstances or conditions currently exist that could adversely affect such continued compliance with or result in Liabilities under Environmental Laws and Environmental Permits or require currently unbudgeted capital expenditures to achieve or maintain such continued compliance with Environmental Laws and Environmental Permits;  

(b)None of Val-Tex or any Val-Tex Property is the subject of any outstanding written Order with any Governmental Body with respect to Environmental Laws, Hazardous Materials, or any Release or threatened Release of a Hazardous Material, and Val-Tex has not received any notice of violation of Environmental Law that has not been resolved or any written request for information under CERCLA or any analogous state statute or written notification alleging responsibility under CERCLA or an analogous state statute;

(c)No claim, Legal Proceeding or demand is pending, or to the Knowledge of Val-Tex, threatened against Val-Tex alleging either or both that Val-Tex or any Val-Tex Property may be in material violation of any Environmental Law or Environmental Permit, or that there are material Liabilities under any Environmental Law or there has been any Release of Hazardous Material related to Val-Tex or any Val-Tex Property;

(d)Val-Tex has not treated, stored, recycled or disposed of any Hazardous Materials on any Val-Tex Property in violation of any Environmental Law or in a manner that could reasonably be expected to result in Liability under Environmental Law and there has been no Release or threatened Release of any Hazardous Materials on, at, under, to, from or about any Val-Tex Property, or during the time period of Val-Tex ownership or operations from any property formerly owned or operated by Val-Tex, or any location at which Val-Tex has disposed or arranged for the disposal of Hazardous Materials and no Val-Tex Property is listed or proposed for listing on the National Priorities List under CERCLA, the Comprehensive Environmental Response Compensation Liability Information System database under CERCLA, or any list established by a Governmental Body of site potentially requiring environmental remediation or response action;

(e)To the Knowledge of Val-Tex, there are no pending or threatened, investigations of Val-Tex or any Val-Tex Property which could lead to the imposition of material Liabilities or Liens under Environmental Law;

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(f)All storage tanks and associated piping located on the Val-Tex Property have been maintained, inspected and tested in compliance with Environmental Law, are in sound condition and are not leaking and have not leaked; there are no closed, out of service or abandoned storage tanks on or under the Val-Tex Property;

(g)The Transactions do not require the consent of or filings with any Governmental Body with jurisdiction over Val-Tex under Environmental Law;

(h)To the Knowledge of Val-Tex, there are no pending or proposed new Environmental Laws that may reasonably be expected to adversely affect Val-Tex or any Val-Tex Property either before or after the Closing;

(i)Val-Tex has delivered to KMG true and complete copies and results of any all assessments, audits, reports, studies, analyses, tests, or monitoring possessed or initiated by Val-Tex pertaining to: (i) the matters in this Section 5.19; (ii) Hazardous Materials or activities in, on or under the Val-Tex Property; and (iii) compliance with Environmental Laws by Val-Tex or any other Person for whose conduct Val-Tex is or may be held responsible relating to or otherwise affecting Val-Tex or any Val-Tex Property; and

(j)Val-Tex has delivered to KMG true and complete copies of all documentation associated with any reports or notifications to the Environmental Protection Agency, the Nuclear Regulatory Commission, or analogous state agencies relating to the handling or Release of Hazardous Materials, including any reports required under the Emergency Planning and Community Right-to-Know Act, as amended, or CERCLA, or analogous state statutes.

5.20Insurance. Except as set forth on Schedule 5.20, Val-Tex has insurance policies in full force and effect (a) for such amounts as are sufficient for all requirements of Law and all agreements to which Val-Tex is a party or by which it is bound and (b) which are in such amounts, with such deductibles and against such risks and losses, as are commercially reasonable for Val-Tex.  All such policies are in full force and effect, all premiums due and payable thereon have been paid (other than retroactive or retrospective premium adjustments that are not yet, but may be, required to be paid with respect to any period ending prior to the Closing Date), and no notice of cancellation or termination has been received with respect to any such policy which has not been replaced on substantially similar terms prior to the date of such cancellation.  There has been no gap in insurance coverage for any risk covered by the insurance policies for the past three years.

5.21Financial Advisors.  Except as set forth on Schedule 5.21, no Person has acted, directly or indirectly, as a broker, finder or financial advisor for Val-Tex in connection with the Transactions and no Person is or will be entitled to any fee or commission or like payment in respect thereof.

5.22Customers and Suppliers.

(a)Set forth on Schedule 5.22(a) are Val-Tex’s ten largest customers, by dollar volume, during the 12 months ended February 28, 2015 and set forth opposite the name of each such customer is the dollar amount of sales attributable to such customer for such periods.  

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Other than as set forth on Schedule 5.22(a), Val-Tex is not engaged in any material dispute with any current customer, no customer has notified Val-Tex that it intends to terminate or materially reduce its business relations with Val-Tex, and Val-Tex has received no notice that any customer would not continue such business relationship with KMG after the Closing.  

(b)Set forth on Schedule 5.22(b) are Val-Tex’s ten largest vendors, by dollar volume, during the 12 months ended February 28, 2015.  Other than as set forth on Schedule 5.22(b), Val-Tex is not engaged in any material dispute with any current vendor to Business and no such vendor has notified Val-Tex that it intends to terminate or materially reduce its business relations with Val-Tex, and Val-Tex has received no notice that any such vendor would not continue such business relationship with KMG after the Closing.

5.23Inventory. All Inventory, whether or not reflected in the Balance Sheet, consists of a quality and quantity usable and salable in the Ordinary Course of Business within a reasonable period of time and at normal profit margins.  All Inventory is free and clear of Liens, other than Permitted Exceptions.  Except as set forth on Schedule 5.23, none of the Inventory is obsolete or is held on a consignment basis. The quantities of each item of Inventory are not excessive, but are reasonable in the present and anticipated circumstances of Val-Tex.

5.24Affiliate Transactions; Shared Services. Except as set forth on Schedule 5.24, no Affiliate, director, officer or employee of Val-Tex owns or has any interest in the Business, or engages in any business with Val-Tex, or is party to any Contract of Val-Tex.  After the Closing, no Affiliate, director, officer or employee of Val-Tex will have any claim of any nature against Val-Tex or the Business.  There are no joint sales agreements, shared services agreements, management services agreement, or similar Contracts to which Val-Tex or any of its Affiliates is a party.

5.25Banks. Schedule 5.25 contains a complete and correct list of the names and locations of all banks in which Val-Tex has accounts or safe deposit boxes and the names of all Persons authorized to draw thereon or to have access thereto.

5.26Terms of Service. Set forth on Schedule 5.26 are the terms of service under which Val-Tex provides products and services to its customers.  No customers are entitled to or benefit from any other service level or performance guarantees or any warranties with respect to the products and services provided by Val-Tex.  In addition, no customers are entitled to any refunds, credits or rights of set-off with respect to any products or services provided by Val-Tex.

 

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Article VI

REPRESENTATIONS AND WARRANTIES OF EACH PRINCIPAL SHAREHOLDER

Each Principal Shareholder hereby severally and not jointly represents and warrants to Val-Tex that:

6.1Authorization of Agreement. Such Principal Shareholder is an individual and has all requisite legal capacity to execute and deliver this Agreement and each other agreement, document, or instrument or certificate contemplated by this Agreement or to be executed by such Principal Shareholder in connection with the consummation of the Transactions (collectively, the “Principal Shareholder Documents”), and to consummate the transactions contemplated hereby and thereby.  This Agreement has been, and each of the Principal Shareholder Documents will be at or prior to the Closing, duly and validly executed and delivered by such Principal Shareholder and (assuming due authorization, execution and delivery by the other parties thereto) this Agreement constitutes, and each of the Principal Shareholder Documents when so executed and delivered will constitute, legal, valid and binding obligations of such Principal Shareholder, enforceable against such Principal Shareholder in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

6.2Conflicts; Consents of Third Parties.

(a)Except as set forth on Schedule 6.2 hereto, none of the execution and delivery by such Principal Shareholder of this Agreement and of the Principal Shareholder Documents, the consummation of the Transactions, or the compliance by such Principal Shareholder with any of the provisions hereof or thereof will conflict with, or result in violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under any provision of (i) any Contract or Permit to which such Principal Shareholder is a party or by which any of the properties or assets of such Principal Shareholder are bound; (ii) any Order of any Governmental Body applicable to such Principal Shareholder or by which any of the properties or assets of such Principal Shareholder are bound; or (iii) any applicable Law.

(b)No consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of such Principal Shareholder in connection with the execution and delivery of this Agreement or the Principal Shareholder Documents or the compliance by such Principal Shareholder with any of the provisions hereof or thereof, except for such consents, waivers, approvals, Orders, Permits, authorizations, declarations, filings or notifications that, if not obtained, made or given, would not, individually or in the aggregate, have a material adverse effect on the ability of such Principal Shareholder to consummate the Transactions.  

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6.3Ownership of Shares. Such Principal Shareholder is the record and beneficial owner of the Shares set forth opposite his name on Schedule 6.3 hereto, free and clear of any and all Liens.

6.4Securities Laws Matters.

(a)Such Principal Shareholder has had every opportunity to ask questions and receive answers from KMG concerning the terms and conditions of the acquisition of the Common Stock and the operations of KMG and the risks thereof, and all of such questions have been answered to the full satisfaction of such Principal Shareholder.  Such Principal Shareholder has had access to such information concerning KMG and the Common Stock as it deems necessary to enable such Principal Shareholder to make an informed investment decision concerning the acquisition of the Common Stock, including access to KMG’s filings with the Securities and Exchange Commission available at sec.gov.  

(b)Such Principal Shareholder has extensive knowledge and experience in financial matters, business matters and investments to be capable of evaluating the merits and risks of an unregistered investment, such as an investment in KMG, and has evaluated the merits and risks of such an investment and has understood the merits and risks of such an investment.  Such Principal Shareholder has independently determined the acceptability of an investment in KMG.  

(c)Such Principal Shareholder acknowledges that an investment in the Common Stock is suitable and consistent with such Principal Shareholder’s investment program and that such Principal Shareholder’s financial position enables such Principal Shareholder to bear the risks of this investment.

(d)Such Principal Shareholder understands that the offer and sale of the Common Stock have not been reviewed, approved or disapproved by the Securities and Exchange Commission or any other Governmental Body. Such Principal Shareholder understands that the Common Stock is being offered and sold to it in reliance on Section 4(a)(2) and/or Regulation D, which are exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), as well as exemptions from the registration requirements of state securities laws and that KMG is relying in part upon the truth and accuracy of, and such Principal Shareholder’s compliance with, the representations, warranties, agreements, acknowledgments, and understandings of such Principal Shareholder set forth in this Agreement in order to determine the availability of such exemptions and the eligibility of such Principal Shareholder to acquire the Common Stock in compliance with such laws.  Such Principal Shareholder acknowledges that neither KMG nor any other Person acting on its behalf has offered to sell any of the Common Stock to such Principal Shareholder by means of any form of general solicitation or advertising, including, without limitation, (i) any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, and (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.  Such Principal Shareholder has not taken any action that would result in the offering of the Common Stock pursuant to this Agreement being treated as a public offering rather than a valid private offering under the law.

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(e)Such Principal Shareholder is aware that the Common Stock subscribed for cannot be resold or otherwise transferred except in compliance with all federal and state securities laws.  Such Principal Shareholder understands and hereby acknowledges that KMG is under no obligation to register the Common Stock under the Securities Act or any state securities or “blue sky” laws (“Blue Sky Laws”).  Such Principal Shareholder consents that KMG may, if it desires, permit the transfer of the Common Stock out of such Principal Shareholder’s name only when such Principal Shareholder’s request for transfer is accompanied by an opinion of counsel reasonably satisfactory to KMG that neither the sale nor the proposed transfer results in a violation of the Securities Act or any applicable Blue Sky Laws.

(f)Such Principal Shareholder represents and warrants that the Common Stock being subscribed for is being acquired solely for Such Principal Shareholder’s own account, for investment purposes only, and not for resale, distribution, subdivision, or fractionalization thereof.

6.5Litigation.  There are no Legal Proceedings pending or, to the knowledge of such Principal Shareholder, threatened that are reasonably likely to prohibit or restrain the ability of such Principal Shareholder to enter into this Agreement or consummate the Transactions.

6.6Financial Advisors.  Except as set forth on Schedule 6.6, no Person has acted, directly or indirectly, as a broker, finder or financial advisor for such Principal Shareholder in connection with the Transactions and no Person is entitled to any fee or commission or like payment in respect thereof.

Article VII

REPRESENTATIONS AND WARRANTIES OF KMG

KMG hereby represents and warrants to Val-Tex that:

7.1Organization and Good Standing.

KMG is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. Each of Disappearing Sub and Surviving Sub is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Texas.

7.2Authorization of Agreement. Each of KMG, Disappearing Sub and Surviving Sub (each, a “KMG Entity”) has full corporate or limited liability company power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by such KMG Entity in connection with the consummation of the Transactions (the “KMG Documents”), and to consummate the Transactions.  The execution, delivery and performance by each KMG Entity of this Agreement and each KMG Document have been duly authorized by all necessary corporate or limited liability company action on behalf of such KMG Entity.  This Agreement has been, and each KMG Document will be at or prior to the Closing, duly executed and delivered by each KMG Entity and (assuming the due authorization, execution 

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and delivery by the other parties hereto and thereto) this Agreement constitutes, and each KMG Document when so executed and delivered will constitute, the legal, valid and binding obligation of such KMG Entity, enforceable against such KMG Entity in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

7.3Conflicts; Consents of Third Parties.

(a)Except as set forth on Schedule 7.3 hereto, none of the execution and delivery by any KMG Entity of this Agreement and of the KMG Documents, the consummation of the Transactions, or the compliance by such KMG Entity with any of the provisions hereof or thereof will (i) conflict with, or result in violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under any provision of (A) the certificate of formation, bylaws or other organizational documents of such KMG Entity; (B) any Contract or Permit to which such KMG Entity is a party or by which any of the properties or assets of such KMG Entity are bound; (C) any Order of any Governmental Body applicable to such KMG Entity or by which any of the properties or assets of such KMG Entity are bound; or (D) any applicable Law; or (ii) result in the creation or imposition of any Lien other than Permitted Exceptions on Val-Tex.

(b)No consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of any KMG Entity in connection with the execution and delivery of this Agreement or the KMG Documents or the compliance by such KMG Entity with any of the provisions hereof or thereof, except for such consents, waivers, approvals, Orders, Permits, authorizations, declarations, filings or notifications that, if not obtained, made or given, would not, individually or in the aggregate, have a material adverse effect on the ability of such KMG Entity to consummate the Transactions.

7.4Litigation. There are no Legal Proceedings pending or, to the Knowledge of KMG, threatened that are reasonably likely to prohibit or restrain the ability of any KMG Entity to enter into this Agreement or consummate the Transactions.

7.5Shares. Assuming that the representations and warranties of Val-Tex contained in Section 5.3(a) and of the Principal Shareholders contained in Section 6.4 are true and correct, the Reverse Merger, the issuance of the Stock Merger Consideration to the Shareholders in connection therewith is not required to be registered under the Securities Act.  KMG has full legal right and authority to issue the shares as contemplated by this Agreement.  When issued to the Val-Tex Shareholders pursuant to this Agreement, the shares of KMG will be (a) duly authorized and validly issued, (b) fully paid and non-assessable, (c) free and clear of liens or encumbrances or restrictions (other than restrictions on resale under the Securities Act) and (d) issued in compliance with the organizational documents of KMG and all applicable federal and state securities Laws, rules and regulations and stock exchange rules and regulations.

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7.6Disclosure. KMG has filed all forms, reports and documents required to be filed by it pursuant to applicable securities laws since December 31, 2013 (collectively, the “KMG Reports”).  As of their respective dates, the KMG Reports (i) were prepared in accordance with the applicable requirements of NYSE, the Securities Act, the Securities and Exchange Act of 1934, as amended, and in each case, the rules and regulations thereunder, and complied with the then applicable accounting requirements and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  Each of the consolidated balance sheets included in the KMG Reports (including the related notes and schedule) fairly presents in all material respects the consolidated financial position of Company and its subsidiaries as of its respective date and each of the consolidated income statements, consolidated statements of changes in stockholders equity and consolidated statements of cash flows included in the KMG Reports (including any related notes and schedules) fairly presents in all material respects the income, changes in stockholders equity and cash flows, as the case may be, of KMG and its subsidiaries for the periods set forth therein, in each case in accordance with GAAP consistently applied during the periods involved, except as may be noted therein. 

7.7Financial Advisors. Except as set forth on Schedule 7.5, no Person has acted, directly or indirectly, as a broker, finder or financial advisor for any KMG Entity in connection with the Transactions and no Person is entitled to any fee or commission or like payment in respect thereof.

Article VIII

COVENANTS

8.1Access to Information. Val-Tex shall afford to KMG and its accountants, counsel, financial advisors and other representatives, and to prospective financing sources, investors and placement agents and each of their respective representatives, full access, during normal business hours upon reasonable notice throughout the period prior to the Closing, to its properties and facilities, books, records, contracts, and financial information and, during such period, shall furnish promptly such information concerning Val-Tex, and the properties and personnel of Val-Tex as KMG shall reasonably request; provided, that, such investigation shall not unreasonably disrupt Val-Tex’s operations.  Prior to the Closing, Val-Tex shall generally keep KMG informed as to all material matters involving the operation of Val-Tex.  Val-Tex shall authorize and direct the appropriate officers, directors, managers and Employees of Val-Tex to discuss matters involving Val-Tex, as the case may be, with representatives of KMG.  Prior to the Closing, all nonpublic information provided to, or obtained by, KMG in connection with the Transactions shall be “Confidential Information” for purposes of the Non-Disclosure Agreement dated ______ between KMG and Val-Tex (the “Confidentiality Agreement”), the terms of which shall continue in force until the Closing; provided, that KMG and Val-Tex may disclose such information as may be necessary in connection with seeking necessary consents and approvals as contemplated hereby.

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8.2Conduct of the Business Pending the Closing.

(a)Except as otherwise expressly provided by this Agreement or with the prior written consent of KMG, between the date hereof and the Closing, Val-Tex shall and each Principal Shareholder shall cause Val-Tex to:

(i)conduct the Business only in the Ordinary Course of Business;

(ii)use its commercially reasonable efforts to (A) preserve the present business operations, organization (including officers and Employees) and goodwill of Val-Tex and (B) preserve the present relationships with Persons having business dealings with Val-Tex (including clients, customers and suppliers and service providers);

(iii)maintain (A) all of the assets and properties of, or used by, Val-Tex in their current condition, ordinary wear and tear excepted, and (B) insurance upon all of the properties and assets of Val-Tex in such amounts and of such kinds comparable to that in effect on the date of this Agreement;

(iv)(A) maintain the books, accounts and records of Val-Tex in the Ordinary Course of Business, (B) continue to collect accounts receivable and pay accounts payable utilizing normal procedures and without discounting or accelerating payment of such accounts, and (C) comply with all contractual and other obligations of Val-Tex; and

(v)comply in all material respects with all applicable Laws.

(b)Without limiting the generality of the foregoing, except as set forth in Section 2.1(d) and except with the prior written consent of KMG, Val-Tex shall not and each Principal Shareholder shall cause Val-Tex not to:

(i)declare, set aside, make or pay any dividend or other distribution in respect of the capital stock of or other securities of, or other ownership interests in, Val-Tex or repurchase, redeem or otherwise acquire any outstanding equity interests or other securities of, or other ownership interests in, Val-Tex;

(ii)transfer, issue, sell, pledge, encumber or dispose of the equity interests or other securities of, or other ownership interests in, Val-Tex, or grant options, warrants, calls or other rights to purchase or otherwise acquire equity interests or other securities of, or other ownership interests in, Val-Tex;

(iii)effect any recapitalization, reclassification, stock split, combination or like change in the capitalization of Val-Tex, or amend the terms of any outstanding securities of Val-Tex;

(iv)amend the certificate of formation or bylaws or equivalent organizational or governing documents of Val-Tex;

(v)(A) increase the salary or other compensation of any director, manager, officer or Employee, except for normal year-end increases in the Ordinary Course of 

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Business (B) grant any unusual or extraordinary bonus, benefit or other direct or indirect compensation to any director, officer, Employee or consultant, provided, however, prior to the Closing Date, or in connection therewith, (C) increase the coverage or benefits available under any (or create any new) severance pay, termination pay, vacation pay, company awards, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, pension or other employee benefit plan or arrangement made to, for, or with any of the directors, managers, officers, Employees, agents or representatives of Val-Tex or otherwise modify or amend or terminate any such plan or arrangement or (D) enter into any employment, deferred compensation, severance, special pay, consulting, non-competition or similar agreement or arrangement with any directors, managers or officers of Val-Tex (or amend any such agreement) to which Val-Tex is a party;

(vi)(A) issue, create, incur, assume, guarantee, endorse or otherwise become liable or responsible with respect to (whether directly, contingently or otherwise) any Indebtedness, other than accounts payable in the Ordinary Course of Business; (B) except in the Ordinary Course of Business or in connection with and immediately prior to Closing, pay, repay, discharge, purchase, repurchase or satisfy any Indebtedness of Val-Tex; or (C) modify the terms of any Indebtedness or other Liability;

(vii)subject to any Lien or otherwise encumber or, except for Permitted Exceptions, permit, allow or suffer to be encumbered, any of the properties or assets (whether tangible or intangible) of, or used by, Val-Tex;

(viii)acquire any material properties or assets or sell, assign, license, transfer, convey, lease or otherwise dispose of any of the material properties or assets of, or used by, Val-Tex, other than for fair consideration in the Ordinary Course of Business;

(ix)enter into or agree to enter into any merger or consolidation with any Person, and not engage in any new business or invest in, make a loan, advance or capital contribution to, or otherwise acquire the securities, of any other Person;

(x)cancel or compromise any debt or claim or waive or release any material right of Val-Tex except in the Ordinary Course of Business;

(xi)enter into any commitment for capital expenditures of Val-Tex in excess of $10,000 for any individual commitment and $20,000 for all commitments in the aggregate;

(xii)enter into, modify or terminate any labor or collective bargaining agreement of Val-Tex or, through negotiation or otherwise, make any commitment or incur any Liability to any labor organization with respect to Val-Tex;

(xiii)introduce any material change with respect to the operation of Val-Tex, including any material change in the types, nature, composition or quality of its products or services, or, other than in the Ordinary Course of Business, make any change in product specifications or prices or terms of distributions of such products or change its 

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pricing, discount, allowance or return policies or grant any pricing, discount, allowance or return terms for any customer or supplier not in accordance with such policies; 

(xiv)enter into any transaction or enter into, modify or renew any Contract which by reason of its size, nature or otherwise is not in the Ordinary Course of Business;

(xv)except for transfers of cash pursuant to normal cash management practices in the Ordinary Course of Business, make any investments in or loans to, or pay any fees or expenses to, or enter into or modify any Contract with any Affiliate or related Person;

(xvi)make a change in its accounting or Tax reporting principles, methods or policies;

(xvii)(i) make, change or revoke any Tax election, settle or compromise any Tax claim or Liability or enter into a settlement or compromise, or change (or make a request to any Taxing Authority to change) any material aspect of its method of accounting for Tax purposes, or (ii) prepare or file any Tax Return (or any amendment thereof) unless such Tax Return shall have been prepared in a manner consistent with past practice and Val-Tex shall have provided KMG a copy thereof (together with supporting papers) at least three Business Days prior to the due date thereof for KMG to review and approve (such approval not to be unreasonably withheld or delayed);

(xviii)enter into any Contract, understanding or commitment that restrains, restricts, limits or impedes the ability of Val-Tex to compete with or conduct any business or line of business in any geographic area or solicit the employment of any Persons;

(xix)terminate, amend, restate, supplement, abandon or waive any rights under any (A) Material Contract, other than in the Ordinary Course of Business or (B) Permit;

(xx)settle or compromise any pending or threatened Legal Proceeding or any claim or claims;

(xxi)change or modify its credit, collection or payment policies, procedures or practices, including acceleration of collections or receivables (whether or not past due) or fail to pay or delay payment of payables or other Liabilities;

(xxii)take any action which would adversely affect the ability of the parties to consummate the Transactions;

(xxiii)fail to pay any required maintenance or other similar fees or otherwise fail to make required filings or payments required to maintain and further prosecute any applications for registration of Intellectual Property; or

(xxiv)agree to do anything (A) prohibited by this Section 8.2, (B) which would make any of the representations and warranties of Val-Tex or the Principal Shareholders in this Agreement or any of the Principal Shareholder Documents or Val-Tex Documents untrue or incorrect in any material respect or could result in any of the conditions to the 

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Closing not being satisfied or (C) that would be reasonably expected to have a material adverse effect on the Business.

8.3Consents. Val-Tex shall use its commercially reasonable efforts to obtain at the earliest practicable date (a) all consents, waivers and approvals from, and provide all notices to, all Persons that are not a Governmental Body, required to consummate, or in connection with, the Transactions, including the consents, waivers, approvals and notices listed on Schedule 5.6(b) and (b) all estoppel certificates reasonably requested by KMG; provided that KMG agrees that Val-Tex shall have no Liability to KMG arising out of or relating to the failure to obtain consents, approvals or waivers that may be required in connection with the Transactions or the termination of a Contract as a result thereof.  Notwithstanding the foregoing, no such consents, waivers, approvals, notices, or estoppel certificates are conditions precedent to KMG’s obligation to consummate the Transactions except for those set forth on Schedule 8.3 (the “Required Consents”). All such consents, waivers, approvals, notices, and estoppel certificates shall be in writing and in form and substance satisfactory to KMG and include those specific conditions set forth on Schedule 8.3. Executed counterparts of such consents, waivers, approvals, and estoppel certificates shall be delivered to KMG promptly after receipt thereof, and copies of such notices shall be delivered to KMG promptly after the making thereof.

8.4Governmental Consents and Approvals.  Each of Val-Tex and KMG shall use its commercially reasonable efforts to obtain at the earliest practical date all consents, waivers, approvals, Orders, Permits, authorizations and declarations from, make all filings with, and provide all notices to, all Governmental Bodies which are required to consummate, or in connection with, the Transactions, including the consents, waivers, approvals, Orders, Permits, authorizations, declarations, filings and notices listed on Schedule 5.6(b); provided that KMG agrees that Val-Tex shall have no Liability to KMG arising out of or relating to the failure to obtain consents, waivers, approvals, Orders, Permits, authorizations or declarations that may be required in connection with the Transactions or the termination of a Contract as a result thereof.  Notwithstanding the foregoing, no such consents, waivers, approvals, Orders, Permits, authorizations, declarations, filings and notices are conditions precedent to KMG’s obligation to consummate the Transactions except for those set forth on Schedule 8.4 (the “Required Governmental Consents”).

8.5Further Assurances.  Subject to, and not in limitation of, Sections 8.3 and 8.4, each of Val-Tex and KMG shall use its commercially reasonable efforts to (i) take, or cause to be taken, all actions necessary or appropriate to consummate the Transactions and (ii) cause the fulfillment at the earliest practicable date of all of the conditions to their respective obligations to consummate the Transactions. KMG further agrees to make commercially reasonable efforts to collect the outstanding accounts receivables distributed to the Val-Tex shareholders listed on Schedule 8.5 (the “Listed Shareholders”) prior to the Closing (the “Distributed Receivables”) and upon collection of the Distributed Receivables, remit the same to the Listed Shareholders within ten (10) Business Days.  Notwithstanding the foregoing, KMG does not guarantee the collection of the Distributed Receivables and any risk of non-payment of such receivables shall accrue to the Listed Shareholders.

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8.6Publicity. Neither Val-Tex nor KMG shall issue any press release or public announcement concerning this Agreement or the Transactions without obtaining the prior written approval of the other party hereto, which approval will not be unreasonably withheld or delayed, unless, in the sole judgment of KMG or Val-Tex, as applicable, disclosure is otherwise required by applicable Law or by the applicable rules of any stock exchange on which KMG lists securities (subject to KMG providing Val-Tex for any such announcement to be made in writing, with a draft of such announcement prior to making such announcement, and providing Val-Tex an opportunity to comment thereon before such announcement is made), provided, that, to the extent required by applicable Law, the party intending to make such release shall use its commercially reasonable efforts consistent with such applicable Law to consult with the other party with respect to the timing and content thereof.  

8.7Approval of Merger Agreement.

(a)Val-Tex shall take all action necessary to convene and hold a meeting of Val-Tex’s shareholders (the “Shareholders’ Meeting”), to be held on or before April 30, 2015 (but no sooner than 21 days after notice of the Shareholders’ Meeting is given) for the purpose of approving: (i) the adoption of this Agreement, and (ii) the approval of the Reverse Merger (collectively, the “Required Proposals”).  Val-Tex will use its reasonable best efforts to solicit from its shareholders proxies in favor of the Required Proposals and will take all other action necessary or advisable to obtain such approvals and to secure the requisite affirmative vote of its shareholders. In each case, Val-Tex (A) shall consult with KMG regarding the date of the Shareholders’ Meeting, and (B) shall not postpone or adjourn the Shareholders’ Meeting without the prior written consent of KMG; provided, however, that Val-Tex may, and Val-Tex shall upon the request of KMG, adjourn or postpone the Shareholders’ Meeting to the extent necessary to ensure that any necessary supplement or amendment to the Proxy is provided to Val-Tex’s shareholders in advance of a vote on the Required Proposals or if, as of the time for which the Shareholders’ Meeting is originally scheduled, there are insufficient Common Shares represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Shareholders’ Meeting. Val-Tex shall call, notice, convene, hold and conduct the Shareholders’ Meeting, and solicit proxies in connection with the Shareholders’ Meeting, in compliance with the TBOC, its certificate of formation and bylaws, and all other applicable laws and regulations. 

(b)The board of directors of Val-Tex shall recommend that Val-Tex’s shareholders vote in favor of and adopt and approve the Required Proposals; the Proxy shall include a statement to the effect that the board of directors of Val-Tex has recommended that Val-Tex’s shareholders vote in favor of and adopt and approve the Required Proposals at the Shareholders’ Meeting; and neither the board of directors of Val-Tex nor any committee thereof shall withdraw, amend or modify, or propose or resolve to withdraw, amend or modify in a manner adverse to the Transactions, the recommendation of the board of directors of Val-Tex that Val-Tex’s shareholders vote in favor of and adopt and approve the Required Proposals. 

(c)At the Shareholders’ Meeting, each Principal Shareholder shall vote all of his Shares or cause his Shares to be voted: (i) in favor of (1) each of the Required Proposals and (2) any other actions properly presented to holders of shares of capital stock of Val-Tex in furtherance of the Merger Agreement, the Reverse Merger and the other actions and transactions 

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contemplated by the Merger Agreement; and (ii) against approval of any proposal made in opposition to, or in competition with, the Merger Agreement or consummation of the Reverse Merger and the other transactions contemplated by the Merger Agreement. 

8.8No Solicitation.

(a)From and after the date of this Agreement until the Closing or termination of this Agreement, Val-Tex shall not, nor shall it authorize or permit its officers, directors, affiliates, Employees or consultants or any investment banker, attorney, advisor or other agent or representative retained by any of them to, directly or indirectly, (i) solicit, initiate, seek, entertain, encourage, facilitate, support or induce the making, submission or announcement of any Acquisition Proposal, (ii) continue or participate in any discussions or negotiations regarding, or furnish to any Person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal, (iii) engage or participate in discussions with any Person regarding any Acquisition Proposal. 

(b)Val-Tex shall immediately cease, and shall cause any Person acting on its behalf to cease, and cause to be terminated any existing discussions or negotiations with any third party conducted heretofore with respect to any Acquisition Proposal and shall request any such third parties in possession of confidential information about Val-Tex that was furnished by or on behalf of Val-Tex to return or destroy all such information in the possession of such third party or the agent or advisor of such third party.

8.9Directors’ and Officers’ Indemnification and Insurance.

(a)For six years after the Closing, the Final Surviving Entity shall indemnify, defend and hold harmless each Person who is now, or has been at any time prior to the date hereof or who becomes prior to the Closing, an officer or director of Val-Tex (each an “Indemnified Party”), who was or is made or is threatened to be made a party or is otherwise involved in any Legal Proceeding against all losses, damages, Liabilities, fees and expenses (including reasonable fees and disbursements of counsel and experts and judgments, fines, losses, claims, Liabilities and amounts paid in settlement (provided that any such settlement is effected with the prior written consent of the Final Surviving Entity, which will not be unreasonably withheld)) actually and reasonably incurred by the Indemnified Party because the Indemnified Party is or was a director or officer of Val-Tex pertaining to any act or omission existing or occurring at or prior to the Closing including any act or omission relating to this Agreement or the Transactions (the “Indemnified Liabilities”) to the full extent permitted under Texas law or Val-Tex’s certificate of formation and bylaws as in effect immediately prior to Closing. If an Indemnified Party makes or asserts any claim for Indemnified Liabilities, any determination required to be made with respect to whether an Indemnified Party’s conduct complies with the standards set forth under the TBOC shall be made by independent counsel mutually acceptable to the Final Surviving Entity and the Indemnified Party; and provided, further, that nothing herein shall impair any rights or obligations of any Indemnified Party.  If any claim or claims are brought against any Indemnified Party (whether arising before or after the Closing), such Indemnified Party may select counsel for the defense of such claim, which counsel shall be reasonably acceptable to the Final Surviving Entity.

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(b)The Final Surviving Entity shall promptly advance all reasonable out-of-pocket expenses of each Indemnified Party in connection with any such Legal Proceeding described above, as such expenses are incurred, to the fullest extent permitted by the TBOC, subject to the receipt by the Final Surviving Entity of an undertaking by or on behalf of such Indemnified Party to repay such amount if it shall ultimately be determined that such Indemnified Party is not entitled to be indemnified by the Final Surviving Entity.

8.10Related Party Transactions. On or prior to the Closing Date, Val-Tex shall (a) terminate all Contracts with any Shareholder or its Affiliates (other than (i) those Contracts set forth on Schedule 8.10 and (ii) Contracts between Val-Tex and its officers and Employees and Contracts, the continuation of which, KMG has approved in writing) and (b) deliver releases executed by such Affiliates with whom Val-Tex has terminated such Contracts pursuant to this Section 8.10 providing that no further payments are due, or may become due, under or in respect of any such terminated Contracts; provided, that in no event shall Val-Tex pay any fee or otherwise incur any expense or financial exposure with respect to any such termination or release. 

8.11Resignation of Officers and Directors. Val-Tex shall cause each of the Employees, officers and directors of Val-Tex listed on Schedule 8.11 to submit a letter of resignation in a form approved by KMG effective on or before the Closing Date.

8.12Offered Business. KMG agrees that if it determines to sell all or any portion of the ownership of Final Surviving Entity or other successor entity, or sell substantially all the lubricants business of Final Surviving Entity owned as of the Final Effective Time (the “Offered Business”) within five years of the Final Effective Time, except where the determination results from a bona fide unsolicited third party offer (“Unsolicited Offer”), KMG shall provide written notice (“Sale Notice”) to Leonard of such determination.  Leonard shall indicate in writing within 10 days of receipt of the Sales Notice whether he is interested in a possible purchase of the Offered Business.  If Leonard does not respond that he is interested in a possible purchase of the Offered Business in the 10‐day period, the parties shall have no further rights or obligations with respect to a possible purchase of the Offered Business.  If Leonard responds that he is interested in a possible purchase of the Offered Business in the 10‐day period, Final Surviving Entity and KMG will not, directly or indirectly, offer the Offered Business to any third party, except where such transaction results from an Unsolicited Offer, until 30 days after the Sale Notice.  Final Surviving Entity shall not be obligated to give a Sale Notice more than once during the 5‐year period after the Final Effective Time.  Final Surviving Entity shall not be obligated to give a Sale Notice, and the provisions of this paragraph will not apply, (a) where the Offered Business is to be sold in connection with an Unsolicited Offer, (b) at any time after Final Surviving Entity has made an acquisition of any business from a third party, including any acquisition of a lubricants business, or (c) where the Offered Business is to be sold as part of the sale of KMG, whether that sale is effected through a sale of all or substantially all of KMG’s assets or the acquisition of all or a substantial portion of KMG’s securities by means of a tender offer, stock purchase, stock exchange, merger, consolidation or otherwise.  Except as described in this Agreement as may be mutually agreed in written agreements entered into after the Sale Notice, neither Leonard, Final Surviving Entity nor KMG will have any obligation with respect to a possible sale of the Offered Business.

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8.13Notification.  Prior to the Closing, Val-Tex shall promptly notify KMG in writing if it becomes aware of (a) any fact or condition that causes or constitutes a breach or inaccuracy of any of Val-Tex’s representations and warranties made as of the date of this Agreement or (b) the occurrence after the date of this Agreement of any fact or condition that would be reasonably likely to (except as expressly contemplated by this Agreement) cause or constitute a breach or inaccuracy of any such representation or warranty had that representation or warranty been made of the time of the occurrence of, or Val-Tex’s discovery of, such fact or condition.  Prior to the Closing, Val-Tex also shall promptly notify KMG of the occurrence of any breach of any covenant of Val-Tex in this Article VIII or of the occurrence of any event that may make the satisfaction of the conditions in Article X impossible.

Article IX

SHAREHOLDERS’ REPRESENTATIVE

9.1Shareholder’s Representative.

(a)The Shareholders’ Representative is hereby appointed, authorized and empowered to act as a representative for the benefit of the holders of the Shares (which for purposes of this Section 9.1 shall not include Disappearing Sub or KMG or holders of Dissenting Shares), as the exclusive agent and attorney-in-fact to act on behalf of each such holder of the Shares, in connection with and to facilitate the consummation of the transactions contemplated hereby and any post-Closing matters, including, without limitation, Article XI, which shall include the power and authority:

(i)subject to Section 9.1(e), to execute and deliver such waivers and consents in connection with this Agreement and each other agreement, document, instrument or certificate referred to herein or therein or the transactions provided for herein or therein as the Shareholders’ Representative, in its sole discretion, may deem necessary or desirable;

(ii)as representative, to enforce and protect the rights and interests of the holders of the Shares (including the Shareholders’ Representative, in his capacity as a Shareholder in Val-Tex) and to enforce and protect the rights and interests of the Shareholders’ Representative arising out of or under or in any manner relating to this Agreement and each other agreement, document, instrument or certificate referred to herein or therein or the transactions provided for herein or therein (including, without limitation, in connection with any and all claims for indemnification brought under Article XI hereof and Reverse Merger Consideration adjustments pursuant to Section 2.5), and to take any and all actions that the Shareholders’ Representative believes are necessary or appropriate under this Agreement for and on behalf of the holders of the Shares, including, without limitation, asserting or pursuing any Legal Proceeding against KMG, Disappearing Sub and/or the Final Surviving Entity, defending any Third-Party Claims or claims by the KMG Indemnified Parties, consenting to, compromising or settling any such claims, conducting negotiations with KMG, the Final Surviving Entity and their respective representatives regarding such claims, and, in connection therewith, 

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to (A) assert any Legal Proceeding or investigation; (B) investigate, defend, contest or litigate any claim initiated by KMG, the Final Surviving Entity or any other Person, or by any Governmental Body against the Shareholders’ Representative and any of the holders of the Shares, and receive process on behalf of any or all holders of the Shares in any such claim and compromise or settle on such terms as the Shareholders’ Representative shall determine to be appropriate, and give receipts, releases and discharges with respect to, any such claim; (C) file any proofs of debt, claims and petitions as the Shareholders’ Representative may deem advisable or necessary; (D) settle or compromise any claims asserted under this Agreement; and (E) file and prosecute appeals from any decision, judgment or award rendered in any such Legal Proceeding, it being understood that the Shareholders’ Representative shall not have any obligation to take any such actions, and shall not have any Liability for any failure to take any such actions;

(iii)to refrain from enforcing any right of the holders of the Shares or any of them and/or the Shareholders’ Representative arising out of or under or in any manner relating to this Agreement or any other agreement, instrument or document in connection with the foregoing; provided, however, that no such failure to act on the part of the Shareholders’ Representative, except as otherwise provided in this Agreement, shall be deemed a waiver of any such right or interest by the Shareholders’ Representative or by the holders of the Shares unless such waiver is in writing signed by the waiving party or by the Shareholders’ Representative; and

(iv)to make, execute, acknowledge and deliver this Agreement, all such other agreements, guarantees, orders, receipts, endorsements, notices, requests, instructions, certificates, stock powers, letters and other writings, and, in general, to do any and all things and to take any and all action that the Shareholders’ Representative, in its sole and absolute discretion, may consider necessary or proper or convenient in connection with or to carry out the Transactions and all other agreements, documents or instruments referred to herein or therein or executed in connection herewith and therewith, including retaining counsel, accountants and other experts and incurring fees and expenses.

(b)The Shareholders’ Representative shall not be entitled to any fee, commission or other compensation for the performance of its services hereunder.  In connection with this Agreement and any instrument, agreement or document relating hereto or thereto, and in exercising or failing to exercise all or any of the powers conferred upon the Shareholders’ Representative hereunder, (i) the Shareholders’ Representative shall incur no responsibility whatsoever to any holders of the Shares by reason of any error in judgment or other act or omission performed or omitted under this Agreement or any such other agreement, instrument or document, excepting only responsibility for any act or failure to act that represents willful misconduct or gross negligence, and (ii) the Shareholders’ Representative shall be entitled to rely on the advice of counsel, public accountants or other independent experts experienced in the matter at issue, and any error in judgment or other act or omission of the Shareholders’ Representative pursuant to such advice shall in no event subject the Shareholders’ Representative to Liability to any holders of the Shares.  Without prejudice to the foregoing, the Shareholders’ Representative shall have no Liability in respect of any Legal Proceeding brought against the Shareholders’ Representative by any holder of the Shares if the Shareholders’ Representative took or omitted taking any action in good faith.  Each holder of the Shares shall indemnify, pro 

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rata based upon such holder’s portion of the aggregate Reverse Merger Consideration, the Shareholders’ Representative against all losses, damages, Liabilities, claims, obligations, costs and expenses, including reasonable attorneys’, accountants’ and other experts’ fees and the amount of any judgment against them, of any nature whatsoever (including, but not limited to, any and all expense whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened or any claims whatsoever), arising out of or in connection with any Legal Proceeding or in connection with any appeal thereof, relating to the acts or omissions of the Shareholders’ Representative hereunder or otherwise.  The foregoing indemnification shall not apply in the event of any Legal Proceeding that finally adjudicates the Liability of the Shareholders’ Representative hereunder for its willful misconduct.  In the event of any indemnification hereunder, upon written notice from the Shareholders’ Representative to the holders of Shares as to the existence of a deficiency toward the payment of any such indemnification amount and the Shareholders’ Representative providing a reasonably detailed description as to such deficiency, each holder of Shares shall promptly deliver to the Shareholders’ Representative full payment of his ratable share of the amount of such deficiency based upon such holder’s pro rata portion of the aggregate Reverse Merger Consideration.

(c)All of the indemnities, immunities and powers granted to the Shareholders’ Representative under this Agreement shall survive the Closing Date and/or any termination of this Agreement.

(d)KMG, Disappearing Sub, Surviving Sub and Final Surviving Entity shall have the right to rely upon all actions taken or omitted to be taken by the Shareholders’ Representative pursuant to this Agreement, all of which actions or omissions shall be legally binding upon the holders of the Shares.  Nothing in this Section 9.1 shall alter the obligations or rights of KMG or the Final Surviving Entity found in the rest of this Agreement, it being understood that the obligations of such parties under this Section 9.1 are limited to KMG’s payment of the Reverse Merger Consideration.

(e)Notwithstanding the other provisions of this Section 9.1, other than the last sentence of Section 9.1(d), unless the affected holder consents in writing, the Shareholders’ Representative shall not agree to any amendments or modifications of, and shall not execute and deliver any waivers or consents in connection with, this Agreement or the other agreements and documents referred to herein or therein, that (i) does not treat all holders of a particular series or class of the Shares equally in all material respects, (ii) increases the indemnity obligations of the holders of the Shares referenced in Sections 11.2 and 11.6, or (iii) increases the Indemnity Holdback.

(f)Subject to Section 9.1(e), the Share Surrender Forms shall include the provisions contained in Section 9.1(a) and Section 9.1(b) with such changes, additional terms, conditions, representations, warranties, releases, waivers, covenants, indemnities, consents and appointments as the Shareholders’ Representative either reasonably requests or deems necessary or appropriate for the consummation of the Transactions.

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(g)The grant of authority provided for herein (i) is coupled with an interest and shall be irrevocable and survive the death, incompetence, bankruptcy or liquidation of any holder of the Shares; and (ii) shall survive the consummation of the transactions contemplated herein.

(h)Should the Shareholders’ Representative resign or be unable to serve, either (A) the Shareholders’ Representative shall appoint a single substitute agent to take on the responsibility of the Shareholders’ Representative hereunder or (B) if Fred C. Leonard III is unable to make such appointment, Councill shall appoint a single substitute agent to take on the responsibility of the Shareholders’ Representative hereunder, whose appointment shall be effective on the date of the Shareholders’ Representative’s resignation or incapacity.

(i)The provisions of this Section 9.1 are (i) intended to be for the benefit of, and shall be enforceable by, the Shareholders’ Representative and such Person’s heirs, representatives, successors or assigns, it being expressly agreed that such Persons shall be third party beneficiaries of this Section 9.1, and (ii) in addition to, and not in substitution for, any other right to indemnification or contribution that any such Person may have by contract or otherwise.

Article X

CONDITIONS TO CLOSING

10.1Conditions Precedent to Obligations of the KMG Entities. The obligations of the KMG Entities to consummate the Transactions is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions (any or all of which may be waived in writing by KMG in whole or in part to the extent permitted by applicable Law):

(a)the representations and warranties of Val-Tex and each Principal Shareholder set forth in this Agreement or any certificate or other document furnished or to be furnished to KMG pursuant to this Agreement qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of the Closing as though made at and as of the Closing, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date);

(b)Val-Tex and each Principal Shareholder shall have performed and complied in all material respects with all obligations and agreements required in this Agreement to be performed or complied with by Val-Tex or such Principal Shareholder on or prior to the Closing Date;

(c)At the Shareholders’ Meeting, the Val-Tex shareholders shall have approved the Required Proposals by at least a two-thirds vote as required by the TBOC;

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(d)KMG shall have received a certificate signed by Val-Tex and each Principal Shareholder, in form and substance reasonably satisfactory to KMG, dated as of the Closing Date, to the effect that each of the conditions specified above in Sections 10.1(a)-(c) have been satisfied in all respects;

(e)there shall not be in effect any Order by a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the Transactions;

(f)Val-Tex shall have delivered all of the Required Consents and Required Governmental Consents to KMG at or prior to the Closing;

(g)Val-Tex shall have delivered a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Val-Tex certifying that attached thereto are true and complete copies of (i) the certificate of incorporation of Val-Tex (certified by the Secretary of State of Texas as of a date no more than five days prior to the Closing Date, (ii) the bylaws of Val-Tex, and (iii) all resolutions adopted by the board of directors and shareholders of Val-Tex authorizing the execution, delivery and performance of this Agreement, the other documents contemplated by the Transactions, and the consummation of the Transactions, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the Transactions;

(h)Val-Tex shall have delivered all instruments and documents (including payoff letters) necessary to release any and all Liens on Val-Tex, including appropriate UCC financing statement amendments (termination statements); 

(i)there has not been, nor would there reasonably be expected to be, any material adverse change in the business, operations, assets, results of operations or condition (financial or otherwise) of Val-Tex; 

(j)Val-Tex shall provide a certificate certifying that it is not a U.S. real property holding company as determined for purposes of Section 1445 of the Code;

(k)Val-Tex shall have entered into noncompetition agreements and employment letters with the Persons listed on Schedule 1.10(k) on terms acceptable to KMG;

(l)Each of the directors of Val-Tex shall have delivered a Resignation in the form of Exhibit A; and

(m)Each of the officers and directors of Val-Tex who is no longer to be an officer or director of the Final Surviving Entity shall have delivered a Release in the form of Exhibit B; and

(n)Val-Tex shall have delivered, or caused to be delivered, to KMG such other documents as KMG may reasonably request.

10.2Conditions Precedent to Obligations of Val-Tex and the Principal Shareholders. The obligations of Val-Tex and the Principal Shareholders to consummate the 

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Transactions are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions (any or all of which may be waived in writing by Val-Tex in whole or in part to the extent permitted by applicable Law):

(a)the representations and warranties of KMG set forth in this Agreement or any certificate or other document furnished or to be furnished to Val-Tex pursuant to this Agreement qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of the Closing as though made at and as of the Closing, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date);

(b)KMG shall have performed and complied in all material respects with all obligations and agreements required by this Agreement to be performed or complied with by KMG on or prior to the Closing Date;

(c)At the Shareholders’ Meeting, the Val-Tex shareholders shall have approved the Required Proposals by at least a two-thirds vote as required by the TBOC;

(d)there shall not be in effect any Order by a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the Transactions; and

(e)KMG shall have provided the Reverse Merger Consideration to the Paying Agent.

Article XI

INDEMNIFICATION

11.1Survival of Representations and Warranties. The representations and warranties of the parties contained in this Agreement, any certificate delivered pursuant hereto or any Val-Tex Document, Principal Shareholder Document or KMG Document shall survive the Closing (as applicable, the “Survival Period”) through and including the 18-month anniversary of the Closing Date (the “General Survival Period”); provided, that (a) the representations and warranties of Val-Tex and each Principal Shareholder contained in Sections 5.1, 5.2, 5.3, 5.8, 5.21, 6.1, 6.2, 6.3 and 6.6 (collectively, the “Fundamental Representations”) shall survive indefinitely following the Closing Date and (b) the representations and warranties of Val-Tex and the Principal Shareholders in Sections 5.10 and 5.19 shall survive for a period of 60 days following the expiration of the applicable statute of limitations relating thereto.  Notwithstanding the foregoing or any other generally applicable statute of limitations, any obligations under Sections 11.2(a)(i) and 11.2(b)(i) shall not terminate with respect to any Losses as to which the Person to be indemnified shall have given notice (stating in reasonable detail the basis of the claim for indemnification) to the indemnifying party in accordance with Section 11.3(a) before the termination of the 

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applicable Survival Period.  All covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for such shorter period expressly provided therein.

11.2Indemnification.

(a)From and after the Closing, subject to Sections 11.1 and 11.4 hereof, each Principal Shareholder hereby agrees to jointly and severally indemnify and hold KMG and its Affiliates and their respective directors, managers, officers, employees, equity holders, members, partners, agents, attorneys, representatives, successors and assigns (collectively, the “KMG Indemnified Parties”) harmless from and against, and pay to the applicable KMG Indemnified Parties the amount of, any and all losses, Liabilities, claims, obligations, deficiencies, demands, judgments, damages (excluding any punitive damages, except to the extent arising from a Third Party Claim), interest, fines, penalties, claims, suits, actions, causes of action, assessments, awards, costs and expenses (including costs of investigation and defense and attorneys’ and other professionals’ fees and including those arising under Environmental Law), whether or not involving a Third Party Claim or Legal Proceeding (individually, a “Loss” and, collectively, “Losses”) to the extent based upon, attributable to or resulting from:

(i)any breach or inaccuracy of the representations or warranties made by such Principal Shareholder or Val-Tex in this Agreement or any certificate or other document furnished or to be furnished to KMG pursuant to this Agreement; 

(ii)any breach of any covenant or other agreement on the part of such Principal Shareholder or Val-Tex under this Agreement; or

(iii)any Losses incurred because of a claim arising out of (A) the settlement and distribution of assets prior to Closing as described in Schedule 2.1(d) or (B) any of the assets and liabilities distributed in accordance with to Section 2.1(d).

THIS INDEMNITY OBLIGATION SHALL INCLUDE, WITHOUT LIMITATION, (I) ANY CLAIMS RESULTING FROM THE NEGLIGENCE OR ALLEGED NEGLIGENCE OF ANY INDEMNITEE AND (II) STATUTORY AND COMMON LAW NEGLIGENCE AND STRICT LIABILITY CLAIMS AS WELL AS NEGLIGENCE, STRICT LIABILITY, AND ALL OTHER CLAIMS ARISING UNDER ENVIRONMENTAL LAWS, INCLUDING WITHOUT LIMITATION THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT.

 

(b)From and after the Closing and subject to Sections 11.1 and 11.4, KMG hereby agrees to indemnify and hold each Principal Shareholder and their respective Affiliates, equity holders, directors, officers, employees, members, partners, agents, attorneys, representatives, successors and permitted assigns (collectively, the “Val-Tex Indemnified Parties”) harmless from and against, and pay to the applicable Val-Tex Indemnified Parties the amount of, any and all Losses based upon, attributable to or resulting from:

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(i)any breach or inaccuracy of the representations or warranties made by a KMG Entity in this Agreement or any certificate or other document furnished or to be furnished to Val-Tex pursuant to this Agreement; or

(ii)any breach of any covenant or other agreement on the part of any KMG Entity under this Agreement.

11.3Indemnification Procedures.

(a)Any payment a Principal Shareholder is obligated to make to any KMG Indemnified Parties pursuant to this Article XI shall be paid first, to the extent there are sufficient funds in the Indemnity Holdback, by release of funds to the KMG Indemnified Parties from the Indemnity Holdback by KMG within five (5) Business Days after the date notice of any sums due and owing is given to the Shareholders’ Representative (with a copy to KMG) by the applicable KMG Indemnified Party and shall accordingly reduce the Indemnity Holdback and, second, to the extent the Indemnity Holdback is insufficient to pay any remaining sums due, then the Principal Shareholders shall be required to pay all of such additional sums due and owing to the KMG Indemnified Parties by wire transfer of immediately available funds within five (5) Business Days after the date of such notice.  On the expiration of the General Survival Period, KMG shall release the Indemnity Holdback (to the extent not utilized to pay KMG for any indemnification claim) to the Shareholders, except that the KMG shall retain an amount (up to the total amount then held by the KMG) equal to the amount of claims for indemnification under this Article XI asserted prior to the expiration of the General Survival Period but not yet resolved (“Unresolved Claims”).  The Indemnity Holdback retained for Unresolved Claims shall be released by KMG (to the extent not utilized to pay KMG for any such claims resolved in favor of KMG) upon their resolution in accordance with this Article XI.

(b)A claim for indemnification for Losses for any matter not involving a Third Party Claim may be asserted by notice to the party from whom indemnification is sought.

(c)In the event that any Legal Proceedings shall be instituted or that any claim or demand shall be asserted by any third party in respect of which indemnification may be sought under Sections 11.2 and 11.6 (regardless of the limitations set forth in Section 11.4) (a “Third Party Claim”), the indemnified party shall promptly cause written notice of the assertion of any Third Party Claim of which it has knowledge which is covered by this indemnity to be forwarded to the indemnifying party (the Shareholders’ Representative if the Principal Shareholders are the indemnifying party).  The failure of the indemnified party to give reasonably prompt notice of any Third Party Claim shall not release, waive or otherwise affect the indemnifying party’s obligations with respect thereto except to the extent that the indemnifying party can demonstrate actual material loss and prejudice as a result of such failure.  Subject to the provisions of this Section 11.3, the indemnifying party shall have the right, at its sole expense, to be represented by counsel of its choice, which must be reasonably satisfactory to the indemnified party, and to defend against, negotiate, settle or otherwise deal with any Third Party Claim which relates to any Losses indemnified against by it hereunder.  If the indemnifying party elects to defend against, negotiate, settle or otherwise deal with any Third Party Claim which relates to any Losses indemnified against by it hereunder, it shall within 20 days of the indemnified party’s written notice of the assertion of such Third Party Claim (or 

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sooner, if the nature of the Third Party Claim so requires) notify the indemnified party of its intent to do so.  If the indemnifying party elects not to defend against, negotiate, settle or otherwise deal with any Third Party Claim which relates to any Losses indemnified against by it hereunder or contests its obligation to indemnify the indemnified party for such Losses under this Agreement, the indemnified party may defend against, negotiate, settle or otherwise deal with such Third Party Claim.  If the indemnified party defends any Third Party Claim, then the indemnifying party shall reimburse the indemnified party for the expenses of defending such Third Party Claim upon submission of periodic bills.  If the indemnifying party shall assume the defense of any Third Party Claim, the indemnified party may participate, at his or its own expense, in the defense of such Third Party Claim; provided, that such indemnified party shall be entitled to participate in any such defense with separate counsel at the expense of the indemnifying party if in the reasonable opinion of counsel to the indemnified party, a conflict or potential conflict exists between the indemnified party and the indemnifying party that would make such separate representation advisable; and provided, further, that the indemnifying party shall not be required to pay for more than one such counsel for all indemnified parties in connection with any Third Party Claim.  Each party hereto agrees to provide reasonable access to each other party to such documents and information as may be reasonably requested in connection with the defense, negotiation or settlement of any such Third Party Claim.  Notwithstanding anything in this Section 11.3 to the contrary, neither the indemnifying party nor the indemnified party shall, without the prior written consent of the other party, settle or compromise any Third Party Claim or permit a default or consent to entry of any judgment unless the claimant (or claimants) and such party provide to such other party an unqualified release from all Liability in respect of the Third Party Claim and such settlement or compromise does not lead to the creation of a financial or other obligation on the part of the indemnified party.  If the indemnifying party makes any payment on any Third Party Claim, the indemnifying party shall be subrogated, to the extent of such payment, to all rights and remedies of the indemnified party to any insurance benefits or other claims of the indemnified party with respect to such Third Party Claim.

(d)After any final decision, judgment or award shall have been rendered by a Governmental Body of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the indemnified party and the indemnifying party shall have arrived at a mutually binding agreement, in each case with respect to a Third Party Claim hereunder, the indemnified party shall forward to the indemnifying party notice of any sums due and owing by the indemnifying party pursuant to this Agreement with respect to such matter and the indemnifying party shall pay all of such remaining sums so due and owing to the indemnified party.

11.4Limitations on Indemnification for Breaches or Inaccuracies of Representations and Warranties.

(a)An indemnifying party shall not have any Liability under Section 11.2(a)(i) or Section 11.2(b)(i) hereof unless the aggregate amount of Losses incurred by the indemnified parties and indemnifiable hereunder exceeds $75,000 (the “Deductible”).

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(b)Neither the Principal Shareholders (in the aggregate) nor KMG shall be required to indemnify any Person under Section 11.2(a)(i) or 11.2(b)(i) for an aggregate amount of Losses exceeding $1,500,000 (the “Cap”).

(c)Notwithstanding the foregoing, the limitations set forth in Sections 11.4(a) and 11.4(b) shall not apply to Losses based upon, arising out of, or with respect to or by reason of any inaccuracy in or breach of (i) any Fundamental Representation, or (ii) in the case of fraud or intentional misconduct.

11.5Exclusive Remedies.  The parties acknowledge and agree that, except in the case of fraud or intentional misrepresentation, their sole and exclusive remedy for monetary relief with respect to any and all claims for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in Section 11.2.  In furtherance of the foregoing, except in the case of fraud or intentional misrepresentation, each party to this Agreement, on behalf of itself, its Affiliates and assigns, hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for monetary relief with respect to any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in Section 11.2.

11.6Tax Matters.

(a)Federal Income Tax Treatment.  Immediately prior to and as of the Initial Effective Time, KMG and Val-Tex are each taxed as a subchapter C corporation, and the Disappearing Sub and Surviving Sub are each taxed as a disregarded entity, for federal income tax purposes.  Pursuant to Revenue Ruling 2001-46, the parties hereto intend to treat the Reverse Merger and the Forward Merger as an acquisition, by KMG, of Val-Tex's assets through a single statutory merger that qualifies as a reorganization under Section 368(a)(1)(A) of the Code.  Accordingly at the Final Effective Time, Val-Tex shall be treated as having merged into KMG in a reorganization under Section 368(a)(1)(A) of the Code.  At and immediately following the Final Effective Time of the Merger, KMG shall be treated as a C corporation for federal income tax purposes and the Surviving Sub shall be treated as a disregarded entity for federal income tax purposes.  The parties agree to report the merger consistent with this Section 11.6(a) for federal income tax purposes.

(b)Tax Indemnification.  Each Principal Shareholder, jointly and severally, hereby agrees to be liable for and to indemnify and hold the KMG Indemnified Parties harmless from and against, and pay to the KMG Indemnified Parties the amount of, any and all Losses respect of (i) all Taxes of Val-Tex (A) for any taxable period ending on or before the Closing Date, and (B) for the portion of any Straddle Period ending at the close of business on the Closing Date (determined as provided in Section 11.6(d)); (ii) any and all Taxes imposed on any member of a consolidated, combined or unitary group of which Val-Tex is or was a member on or prior to the Closing Date, by reason of the Liability of Val-Tex, pursuant to Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or 

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similar provision under state, local or foreign Law); (iii) the failure of any of the representations and warranties contained in Section 5.10 to be true and correct in all respects (determined without regard to any qualification related to materiality contained therein) or the failure to perform any covenant contained in this Agreement with respect to Taxes; (iv) any failure by such Principal Shareholder to timely pay any and all Taxes required to be borne by such Principal Shareholder pursuant to Section 11.6(e).

(c)Filing of Tax Returns; Payment of Taxes.

(i)Val-Tex shall timely file all Returns required to be filed by it that are due on or prior to the Closing Date and shall pay or cause to be timely paid all Taxes shown due thereon.  All Tax Returns described in this Section 11.6(b)(i) shall be prepared in a manner consistent with prior practice. 

(ii)The Shareholders’ Representative shall cause to be prepared and KMG shall timely file all Tax Returns required to be filed by Val-Tex for all periods that end on or before the Closing Date and are due after the Closing Date and, subject to the right to payment from the Principal Shareholders under Section 11.6(c)(iii), pay or cause to be paid by the Shareholders’ Representative all Taxes shown due thereon.  Shareholders’ Representative shall provide KMG with copies of such completed Tax Returns at least twenty days prior to the due date for filing thereof, along with supporting workpapers, for KMG’s review and approval.  Shareholders’ Representative and KMG shall attempt in good faith to resolve any disagreements regarding such Tax Returns prior to the due date for filing.  In the event that Shareholders’ Representative and KMG are unable to resolve any dispute with respect to such Tax Return at least ten (10) days prior to the due date for filing, such dispute shall be resolved pursuant to Section 11.6(g), which resolution shall be binding on the parties.

(iii)Not later than ten days prior to the due date for the payment of Taxes on any Tax Returns which KMG has the responsibility to cause to be filed pursuant to Section 11.6(b)(ii), the Shareholders’ Representative shall pay to KMG the amount of Taxes, as reasonably determined by KMG, owed by Val-Tex and to the extent such amounts is not paid by the Shareholders’ Representative, the Principal Shareholders pursuant to the provisions of Section 11.6(a) shall pay such amount.  No payment pursuant to this Section 11.6(b)(iii) shall excuse either Principal Shareholder from its indemnification obligations pursuant to Section 11.6(a) if the amount of Taxes as ultimately determined (on audit or otherwise) for the periods covered by such Tax Returns exceeds the amount paid by either the Shareholders’ Representative or the Principal Shareholder’s payment under this Section 11.6(b)(iii).

(iv)In the event it is determined that Val-Tex has over-paid the Taxes owed by the Principal Shareholders under Section 11.6(b), then, not later than 30 days after the filing of the Tax Return for that period, KMG shall pay to the Shareholders’ Representative Fund the amount of such over payment.

(d)Straddle Period Tax Allocation.  Val-Tex will, unless prohibited by applicable Law, close the taxable period of Val-Tex as of the close of business on the Closing 

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Date.  If applicable Law does not permit Val-Tex to close its taxable year on the Closing Date or in any case in which a Tax is assessed with respect to a taxable period which includes the Closing Date (but does not begin or end on that day) (a “Straddle Period”), the Taxes, if any, attributable to a Straddle Period shall be allocated (i) to the Principal Shareholders for the period up to and including the close of business on the Closing Date, and (ii) to KMG for the period subsequent to the Closing Date.  Any allocation of income or deductions required to determine any Taxes attributable to a Straddle Period shall be made by means of a closing of the books and records of Val-Tex as of the close of the Closing Date, provided that exemptions, allowances or deductions that are calculated on an annual basis (including, but not limited to, depreciation and amortization deductions) shall be allocated between the period ending on the Closing Date and the period after the Closing Date in proportion to the number of days in each such period.

(e)Tax Audits.

(i)If notice of any Legal Proceeding with respect to Taxes of Val-Tex (a “Tax Claim”) shall be received by either party for which the other party may reasonably be expected to be liable pursuant to Section 11.6(a), the notified party shall notify such other party in writing of such Tax Claim; provided, that the failure of the notified party to give the other party notice as provided herein shall not relieve such failing party of its obligations under this Section 11.6 except to the extent that the other party is actually and materially prejudiced thereby.

(ii)KMG shall have the right, at the expense of the Principal Shareholders to the extent such Tax Claim is subject to indemnification by the Principal Shareholders pursuant to Section 11.6(a) hereof, to represent the interests of Val-Tex in any Tax Claim, provided, that with respect to a Tax Claim relating exclusively to taxable periods ending on or before the Closing Date, KMG shall not settle such claim without the consent of the Principal Shareholders, which consent shall not be unreasonably withheld.

(f)Transfer Taxes.  The Principal Shareholders shall be liable for and shall pay (and shall indemnify and hold harmless the KMG Indemnified Parties against) all sales, use, stamp, documentary, filing, recording, transfer or similar fees or Taxes or governmental charges as levied by any Governmental Body including any interest and penalties) in connection with the Transactions.

(g)Disputes.  Any dispute as to any matter covered hereby shall be resolved by the Independent Accounting Firm.  The fees and expenses of such accounting firm shall be borne equally by the Principal Shareholders, on the one hand, and KMG on the other.  If any dispute with respect to a Tax Return is not resolved prior to the due date of such Tax Return, such Tax Return shall be filed in the manner which the party responsible for preparing such Tax Return deems correct.

(h)Time Limits.  Any claim for indemnity under this Section 11.6 may be made at any time prior to sixty (60) days after the expiration of the applicable Tax statute of limitations with respect to the relevant taxable period (including all periods of extension, whether automatic or permissive).

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(i)Amendment.  Neither KMG nor any Affiliate of KMG shall change or rescind any Tax election or amend or otherwise modify any Tax Return relating in whole or in part to Val-Tex with respect to any taxable year ending on or before the Closing Date without the prior written consent of Shareholder’s Representative, which consent shall not be unreasonably conditioned, withheld or delayed. 

(j)Mutual Cooperation.  KMG and Shareholder’s Representative will cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns and any audit or other action with respect to Taxes.  Such cooperation will include the retention and (upon the other party’s request) the provision of records and information reasonably relevant to any such audit or action and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  KMG will retain all books and records with respect to Tax matters pertinent to Val-Tex relating to any taxable period beginning before the Closing Date until expiration of the statute of limitations of the respective taxable periods and to give the Shareholder’s Representative written notice prior to transferring, destroying or discarding any such books and records and, if the Shareholder’s Representative so requests, KMG shall allow the Shareholder’s Representative to take possession of such books and records prior to destroying or discarding them.  KMG and Shareholder’s Representative further agree, upon request, to use their commercially reasonable best efforts to obtain any certificate or other document from any Governmental Body or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated by this Agreement).

(k)Exclusivity.  The indemnification provided for in this Section 11.6 shall be the sole remedy for any claim in respect of Taxes, including any claim arising out of or relating to a breach of Section 5.10.  In the event of a conflict between the provisions of this Section 11.6, on the one hand, and the provisions of Sections 11.1 through 11.4, on the other, the provisions of this Section 11.6 shall control.

11.7Tax Treatment of Indemnity Payments.  To the extent permitted by Law, Val-Tex and KMG agree to treat any indemnity payment made pursuant to this Article XI as an adjustment to the Reverse Merger Consideration for all Tax purposes.  

Article XII 

MISCELLANEOUS

12.1Expenses.  Except as otherwise provided in this Agreement, each of Val-Tex, the Principal Shareholders, Disappearing Sub, Surviving Sub and KMG shall bear its own expenses incurred in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the Transactions.

12.2Consent to Service of Process.  Each of the parties hereto hereby consents to process being served by any party to this Agreement in any Legal Proceeding by the delivery of a copy thereof in accordance with the provisions of Section 12.5.

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12.3Entire Agreement; Amendments and Waivers.  This Agreement (including the schedules and exhibits hereto), the Val-Tex Documents, the Principal Shareholder Documents and the KMG Documents represent the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought.  No action taken pursuant to this Agreement, including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein.  The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach.  No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  All remedies hereunder are cumulative and are not exclusive of any other remedies provided by Law.

12.4Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Texas applicable to contracts made and performed in such State.

12.5Notices.  All notices and other communications under this Agreement shall be in writing and shall be deemed given (i) when delivered personally by hand (with written confirmation of receipt), (ii) when sent by fax (with written confirmation of transmission) or (iii) one Business Day following the day sent by overnight courier (with written confirmation of receipt), in each case at the following addresses and fax numbers (or to such other address or fax number as a party may have specified by notice given to the other party pursuant to this provision):

If to KMG, Disappearing Sub or Surviving Sub, to:

KMG Chemicals, Inc.

9555 W.  Sam Houston Parkway S.

Suite 600

Houston, TX 77099

Attention: Roger Jackson

Fax: (713) 600-3850

With a copy (which shall not constitute notice) to:

Haynes and Boone, LLP

1221 McKinney, Suite 2100

Houston, Texas 77010

Attention: Bill Nelson

Fax: (713) 236-5557

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If to Val-Tex, to:

Valves Incorporated of Texas

10600 Fallstone Road

Houston, TX  77099

Attention: Fred C. Leonard III

Fax: (   ) 

With a copy (which shall not constitute notice) to:

Chamberlain, Hrdlicka, White, Williams & Aughtry

1200 Smith Street, Suite 1400

Houston, Texas 77002

Attn: Barry W. Adkins

Fax: (713) 658-2553

12.6Severability.  If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any Law or public policy, all other terms or provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party.  Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the Transactions are consummated as originally contemplated to the greatest extent possible.

12.7Binding Effect; Assignment.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.  Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any Person not a party to this Agreement except as provided in Sections 11.2 and 11.6.  No assignment of this Agreement or of any rights or obligations hereunder may be made by any party (by operation of Law or otherwise) without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void; provided, that KMG may assign all or any portion of its rights under this Agreement to a purchaser of substantially all of the assets of the Business or one or more of its direct or indirect wholly-owned subsidiaries.

12.8Counterparts.  This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers, as of the date first written above.

KMG CHEMICALS, INC.

	
By:
	
/s/ Christopher T. Fraser
Christopher T. Fraser, President & CEO

KMG VICTORIA I, LLC

	
By:
	
/s/ Christopher T. Fraser
Christopher T. Fraser, Manager

KMG VICTORIA II, LLC

	
By:
	
/s/ Christopher T. Fraser
Christopher T. Fraser, Manager

VALVES INCORPORATED OF TEXAS

	
By:
	
/s/ Fred C. Leonard III
Fred C. Leonard III, President and CEO

 

/s/ Fred C. Leonard III
FRED C. LEONARD III, Individually

/s/ Jason Councill
JASON COUNCILL, Individually

 

 

/s/ Fred C. Leonard III
FRED C. LEONARD III, as the

Shareholders’ Representative

Signature Page to Merger Agreement

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