UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-K
________________________________________
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File Number: 000-50404
________________________________________
LKQ CORPORATION
(Exact name of registrant as specified in its charter)
________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
500 West Madison Street,
Suite 2800, Chicago, IL
(Address of principal executive offices)
36-4215970
(I.R.S. Employer
Identification Number)
60661
(Zip Code)
Registrant’s telephone number, including area code: (312) 621-1950
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.01 per share
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of June 30, 2013, the aggregate market value of common stock outstanding held by stockholders who were not affiliates (as
defined by regulations of the Securities and Exchange Commission) of the registrant was approximately $7.7 billion (based on the
closing sale price on the NASDAQ Global Select Market on such date). The number of outstanding shares of the registrant's common
stock as of February 21, 2014 was 301,383,141.
Those sections or portions of the registrant's proxy statement for the Annual Meeting of Stockholders to be held on May 5,
2014, described in Part III hereof, are incorporated by reference in this report.
Documents Incorporated by Reference
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10-K includes forward-looking statements. Words such as "may," "will," "plan,"
"should," "expect," "anticipate," "believe," "if," "estimate," "intend," "project" and similar words or expressions are used to
identify these forward-looking statements. We have based these forward-looking statements on our current expectations and
projections about future events. However, these forward-looking statements are subject to risks, uncertainties, assumptions and
other factors that may cause our actual results, performance or achievements to be materially different. These factors include,
among other things:
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uncertainty as to changes in North American and European general economic activity and the impact of these changes
on the demand for our products and our ability to obtain financing for operations;
fluctuations in the pricing of new original equipment manufacturer (“OEM”) replacement products;
the availability and cost of our inventory;
variations in the number of vehicles sold, vehicle accident rates, miles driven, and the age profile of vehicles in
accidents;
changes in state or federal laws or regulations affecting our business;
changes in the types of replacement parts that insurance carriers will accept in the repair process;
inaccuracies in the data relating to our industry published by independent sources upon which we rely;
changes in the level of acceptance and promotion of alternative automotive parts by insurance companies and auto
repairers;
changes in the demand for our products and the supply of our inventory due to severity of weather and seasonality of
weather patterns;
increasing competition in the automotive parts industry;
uncertainty as to the impact on our industry of any terrorist attacks or responses to terrorist attacks;
our ability to satisfy our debt obligations and to operate within the limitations imposed by financing agreements;
our ability to obtain financing on acceptable terms to finance our growth;
declines in the values of our assets;
fluctuations in fuel and other commodity prices;
fluctuations in the prices of scrap metal and other metals;
our ability to develop and implement the operational and financial systems needed to manage our operations;
our ability to identify sufficient acquisition candidates at reasonable prices to maintain our growth objectives;
our ability to integrate, realize expected synergies, and successfully operate acquired companies and any companies
acquired in the future, and the risks associated with these companies;
claims by OEMs or others that attempt to restrict or eliminate the sale of alternative automotive products;
termination of business relationships with insurance companies that promote the use of our products;
product liability claims by the end users of our products or claims by other parties who we have promised to
indemnify for product liability matters;
costs associated with recalls of the products we sell;
currency fluctuations in the U.S. dollar, pound sterling and euro versus other currencies;
instability in regions in which we operate that can affect our supply of certain products; and
interruptions, outages or breaches of our operational systems, security systems, or infrastructure as a result of attacks
on, or malfunctions of, our systems.
Other matters set forth in this Annual Report may also cause our actual future results to differ materially from these
forward-looking statements. We cannot assure you that our expectations will prove to be correct. In addition, all subsequent
written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their
entirety by the cautionary statements mentioned above. You should not place undue reliance on these forward-looking
statements. All of these forward-looking statements are based on our expectations as of the date of this Annual Report. We
undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are
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available free of charge through our website (www.lkqcorp.com) as soon as reasonably practicable after we electronically file
the material with, or furnish it to, the Securities and Exchange Commission.
NOTE REGARDING STOCK SPLIT
In 2012, our Board of Directors approved a two-for-one split of our common stock. The stock split was completed in
the form of a stock dividend that was issued on September 18, 2012 to stockholders of record at the close of business on August
28, 2012. The stock began trading on a split adjusted basis on September 19, 2012. The Company’s historical share and per
share information within this Annual Report on Form 10-K has been retroactively adjusted to give effect to this stock split.
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ITEM 1.
BUSINESS
OVERVIEW
LKQ Corporation ("LKQ" or the "Company") provides replacement parts, components and systems needed to repair
cars and trucks. Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products
produced by original equipment manufacturers ("OEMs"); new products produced by companies other than the OEMs, which
are sometimes referred to as aftermarket products; recycled products obtained from salvage vehicles; used products that have
been refurbished; and used products that have been remanufactured.
We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and
mechanical products, recycled collision and mechanical products, refurbished collision products such as wheels, bumper covers
and lights, and remanufactured engines. Collectively, we refer to these products as alternative parts because they are not new
OEM products. We are the nation’s largest provider of alternative vehicle collision replacement products and a leading provider
of alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most
major markets in the United States. Our wholesale operations also reach most major markets in Canada. We are a leading
provider of alternative vehicle replacement products in the United Kingdom, and in the second quarter of 2013, we expanded
our operations into continental Europe through the acquisition of Sator Beheer B.V. ("Sator"), a leading distributor of vehicle
mechanical aftermarket products in the Benelux region. In addition to our wholesale operations, we operate self service retail
facilities across the U.S. that sell recycled automotive products. We have organized our businesses into three operating
segments: Wholesale – North America; Wholesale – Europe; and Self Service. We aggregate our North American operating
segments (Wholesale – North America and Self Service) into one reportable segment, resulting in two reportable segments:
North America and Europe. See Note 13, "Segment and Geographic Information" to the consolidated financial statements in
Part II, Item 8 of this Annual Report on Form 10-K for financial information by reportable segment and by geographic region.
The majority of our products and services are sold to collision repair shops, also known as body shops, and
mechanical repair shops. We also generate a portion of our revenue from scrap sales to metal recyclers. Additionally, we
indirectly rely on insurance companies, which ultimately pay for the majority of collision repairs of insured vehicles, to help
drive demand. Insurance companies tend to exert significant influence in the vehicle repair decision. Because of their
importance to the process, we have formed relationships with certain insurance companies in North America for which we are
designated a preferred products supplier. We are in the process of establishing similar relationships with insurance companies
in Europe.
We obtain the majority of our aftermarket inventory from automotive parts manufacturers and distributors primarily
based in the U.S., the U.K. and other European countries, Taiwan and China. We procure recycled automotive products mainly
by purchasing salvage vehicles, typically severely damaged by collisions and primarily sold at salvage auctions or pools, and
then dismantling and inventorying the parts. The refurbished and remanufactured products that we sell, such as wheels, bumper
covers, lights and engines, originate from the salvage vehicles bought at auctions and from parts received in trade from
customers purchasing replacement products from us.
We believe that we provide customers (and indirectly insurance companies) with a value proposition that includes high
quality products at a lower cost than new OEM products, extensive product availability due to our expansive distribution
network, responsive service and quick delivery. The breadth of our alternative parts offerings allows us to serve as a "one-stop"
solution for our customers looking for the most cost effective way to provide quality repairs.
We strive to be environmentally responsible. Our recycled automotive products provide an alternative to the
manufacture of new products, which would require the expenditure of more resources and energy and would generate
additional pollution. In addition, we save landfill space because the parts that we recycle would otherwise be discarded. We
also collect materials, such as metals, plastics, fuel and motor oil, from the salvage vehicles that we procure, and use them in
our operations or sell them to other users.
HISTORY
Since our formation in 1998, we have grown through internal development and over 170 acquisitions. Today, LKQ is
the only supplier of alternative parts for the automotive collision and mechanical repair industry with a network and presence
serving most major markets in the U.S. and Canada. We are also a leading supplier of automotive aftermarket products in the
U.K. and the Netherlands.
Initially formed through the combination of a number of wholesale recycled products businesses located in Florida,
Michigan, Ohio and Wisconsin, LKQ grew to be a leading source for recycled automotive collision and mechanical products.
We subsequently expanded through acquisitions of aftermarket, recycled, refurbished and remanufactured product suppliers
and manufacturers, and also expanded into the self service retail business. We expanded our aftermarket automotive products
through our 2007 acquisition of Keystone Automotive Industries, Inc., which, at the time of acquisition, was the leading
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domestic distributor of aftermarket products, including collision replacement products, paint products, refurbished steel
bumpers, bumper covers and alloy wheels.
In October 2011, we expanded our operations into the European automotive aftermarket business through our
acquisition of Euro Car Parts Holdings Limited ("ECP"). We further expanded our geographic presence into continental
Europe in May 2013 through our acquisition of Sator, a vehicle mechanical aftermarket parts distribution company based in the
Netherlands, with operations in the Netherlands, Belgium and Northern France. Our European product offerings are primarily
focused on vehicle aftermarket mechanical products, many of which are sourced from the same suppliers that provide products
to the OEMs. The expansion of our geographic presence beyond North America into the European market offers an opportunity
to us, as that market has historically had a low penetration of alternative collision parts.
In addition to our acquisition of Sator, we made 19 acquisitions during 2013, including 10 wholesale businesses in
North America, 7 wholesale businesses in our European segment and 2 self service operations. Our European acquisitions
included five automotive paint distribution businesses in the U.K., which enabled us to expand our collision product offerings.
Our other acquisitions completed during 2013 enabled us to expand into new product lines and enter new markets.
In August 2013, we entered into an agreement with Suncorp Group, a leading general insurance group in Australia and
New Zealand, to develop an alternative vehicle replacement parts business in those countries. Under the terms of the
agreement, we will contribute our experience to help establish automotive parts recycling operations and to facilitate the
procurement of aftermarket parts, while Suncorp will supply salvage vehicles to the venture as well as assist in establishing
relationships with repair shops as customers. Our investment will expand our geographic presence into Australia and New
Zealand and will provide the opportunity to establish a leadership position in the supply of alternative parts in those countries.
On January 3, 2014, we completed our acquisition of Keystone Automotive Holdings, Inc. (“Keystone Specialty”).
Keystone Specialty is a leading distributor and marketer of specialty aftermarket equipment and accessories in North America
serving the following six product segments: truck and off-road; speed and performance; recreational vehicle; towing; wheels,
tires and performance handling; and miscellaneous accessories. Our acquisition of Keystone Specialty allows us to enter into
new product lines and increase the size of our addressable market. In addition, we believe that the acquisition creates potential
logistics and administrative cost synergies and cross-selling opportunities.
Also in January 2014, we completed the acquisition of a U.S. based distributor of automotive cores as well as new and
remanufactured mechanical automotive replacement parts. We believe this acquisition will expand our core and
remanufactured product mix and will allow us to expand our product offering to include certain parts also purchased by OEMs.
In February 2014, we acquired a wholesale salvage operation and a self service operation in North America, which we believe
will expand our market share in the respective markets.
STRATEGY
We are focused on creating economic value for our stockholders by enhancing our position as a leading source for
alternative collision and mechanical repair products, and by expanding into other product lines and businesses that may benefit
from our operating strengths. We believe a supply network with a broad inventory of quality alternative collision and
mechanical repair and other products, high fulfillment rates and superior customer service provides us with a competitive
advantage.
Other than OEMs, the competition in the markets that we serve is extremely fragmented and the supply of products
tends to be localized, often leading to low fulfillment rates, particularly with recycled products. In North America, the
distribution channels for aftermarket and refurbished products have historically been distinct and separate from those for
recycled and remanufactured products despite serving the same customer segment. We provide value to our customers by
bringing these two channels together to provide a broader product offering and more efficient distribution process.
To execute our strategy in North America, we are expanding our network of parts warehouses and dismantling plants
in major metropolitan areas and employing a distribution system that allows for order fulfillment from regional warehouses
located across the U.S. and Canada. By increasing local inventory levels and expanding our network to provide timely access to
a greater range of parts, we have increased fulfillment rates beyond the levels that we believe most of our competitors realize,
particularly for recycled products.
Sources of high quality, reliable alternatives to OEM products are important to insurance companies and to our direct
customers as they seek to control repair costs. Lower parts costs and quicker completion of orders save money and reduce cycle
times. In order to execute this strategy and build on our progress thus far, we will continue to seek to expand into new markets
and to improve penetration both organically and through acquisitions in targeted markets.
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Extensive in-place network
We have invested significant capital to develop a network of alternative parts facilities across North America. We
believe our extensive network gives us a distinct ability to benefit the major automobile insurance companies, which are
generally operated on a national or regional level. The use of our products lowers the cost of repairs, decreases the time
required to return the repaired vehicle to the customer, and provides a replacement product that is of high quality and
comparable performance to the part replaced, all of which are favorable to insurance companies. Additionally, the difficulty and
time required to obtain proper zoning, as well as dismantling and other environmental permits necessary to operate newly-sited
recycled facilities, would make establishing a new network of recycled locations a challenge for a competitor. In addition, there
are difficulties associated with recruiting and hiring an experienced management team that has strong industry knowledge.
We are attempting to utilize a similar strategy in Europe with our acquisitions of ECP and Sator in the past three years.
These companies have a national presence in their respective countries, and we are working to integrate the operations to take
advantage of shared procurement, warehousing and product offerings.
Strong business relationships
We have developed business relationships with key constituents, including automobile insurance companies, suppliers
and other industry participants. Insurance companies, as payers for many repairs, take active roles in the selection of alternative
replacement products for vehicle repairs in order to minimize the repair portion of the claims costs and reduce cycle time. We
also work with insurance companies and vehicle manufacturers to procure salvage vehicles directly from them on a selected
basis, which provides us with an additional source of supply and offers lower transaction costs to sellers of low value salvage
vehicles.
We also provide quality assurance programs that offer additional product support to automobile insurance companies.
These product support programs identify specific subsets of aftermarket products by vendor and product type that can be used
in the repair of vehicles that these companies insure. The programs typically offer aftermarket products that have been
produced by manufacturers certified by a third party testing lab. We may provide additional validation of the quality of the
products beyond our standard warranties, and identification details that make the products traceable back to a manufacturer's
specific production run.
Broad product offering
We maintain a broad product offering of vehicle replacement products across our operations in North America and
Europe. The breadth and depth of our inventory reinforces LKQ's ability to provide a "one-stop" solution for our customers'
alternative vehicle replacement product needs. Customers place a high value on the availability of a broad range of vehicle
replacement products. In our North American operations, we are able to provide the collision and mechanical repair industry
with premium products at costs typically 20% to 50% below new OEM replacement products. The availability of alternative
products means that automobiles can be repaired with lower parts costs, and in some instances, reduced labor costs. In fact,
many insurance companies in North America will not authorize the use of higher cost, new OEM replacement products if
alternative products are available because the use of alternative products provides insurers a method to manage and reduce total
repair costs. Some insurance companies designate us as a preferred supplier for their affiliated repair shops because of our
ability to provide these products. With our distribution network that reaches most of the major markets in the U.S. and Canada,
combined with our extensive range of products, we believe we are the only supplier that is able to support the insurance
industry in this manner. We believe we are well-positioned in Europe to develop a similar distribution network of a broad
product offering to support insurance companies in that market.
High fulfillment rates
We manage local inventory levels to improve delivery time and maximize customer service. Improving local order
fulfillment rates reduces transfer costs and delivery times, and improves customer satisfaction. Our ability to move inventory
throughout our distribution networks increases the availability of replacement products and also helps us to fill a higher
percentage of our customers' requests.
We deploy inventory management systems at our facilities that are similar to those used by leading distribution
companies. We make extensive use of bar code technology and wireless data transmission to track parts from the time a vehicle
or product arrives at a facility to its placement on a truck for delivery to the customer. With this real-time information, we are
able to actively monitor inventory levels throughout our distribution channels.
Technology driven business processes
We focus on technology development as a way to support our competitive advantage. We believe that we can more
cost effectively leverage our data to make better business decisions than our smaller competitors. We continue to develop our
technology to better manage and analyze our inventory, assist our salespeople with up-to-date pricing and availability of our
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products, and further enhance our inventory procurement process. For example, our bidding specialists responsible for
procuring vehicles are equipped with a proprietary software application that compares the vehicles at the salvage auctions to
our current inventory, historical demand, and recent average selling prices to arrive at an estimated maximum bid. This bidding
system reduces the likelihood of purchasing unneeded parts that might result in obsolete inventory.
We employ proprietary methodologies and information systems to help us identify high demand aftermarket and
recycled products. Our aftermarket inventory systems track products sold and sales lost due to a lack of inventory, and make
purchase recommendations based on this information. The inventory systems also recommend purchases and transfers based on
the extent and location of demand, as well as other replenishment factors. When we procure aftermarket products or refurbish
collision replacement products such as wheels, bumper covers and lights, we focus on products that are in the most demand at
all levels of the automotive parts value chain including the professional repair market, the jobber market and the general
insured repair market. Because lead times may take 40 days or more on imported products, sales volume and in-stock inventory
are important factors in the procurement process. We use historical sales records of vehicles by model and year to estimate the
demand for our products. We also analyze new vehicle designs that are expected to come to market to assure that we are
working with suppliers to project future supply and demand trends. Combining this information with proprietary data that
aggregate customer requests for products, we are able to source aftermarket products and salvage vehicles at prices that we
believe will allow us to sell products profitably.
NORTH AMERICA SEGMENT
Wholesale Automotive Products
Our wholesale automobile product operations in North America are organized by geographic regions serving the U.S.
and Canada that sell all four product types (aftermarket, recycled, refurbished and remanufactured parts) to collision and
mechanical automobile repair businesses. Our combined distribution channels for our alternative parts offerings leverage our
facility and warehouse costs and improve local product availability by locating multiple product operations together. Our
aftermarket product operations may include a combination of sales, warehousing and distribution, and in many cases will be
co-located with our refurbishing operations. Our salvage operations typically have processing, sales, distribution and
administrative operations on site, indoor and outdoor storage areas, and include a large warehouse with multiple bays to
dismantle vehicles. Our engine remanufacturing operations are conducted primarily at our facility in Mexico, with sales,
warehousing and distribution operations in the U.S. As of December 31, 2013, our North American wholesale operations
conducted business from 325 facilities.
Wholesale Aftermarket Products
Our 2013 sales included more than 96,000 SKUs of aftermarket automotive products, excluding refurbished products,
for the most common models of domestic and foreign automobiles and light trucks, primarily for the repair of vehicles three to
twelve years old. Our principal aftermarket product types consist of those most frequently damaged in collisions, including
bumper covers, automotive body panels and lights. In recent years, our expansion into complementary product types, such as
paint and cooling products, contributed to the increase in our available products and has allowed us to better meet our
customers' repair needs.
Platinum Plus is our exclusive product line offered in the Keystone brand of aftermarket products. The Platinum Plus
products are held to high quality standards and tested by quality assurance teams or independent third parties. We also
developed a product line called "Value Line" for more value conscious, often self-pay, consumers. Our Value Line products
offer quality products at reasonable prices, providing additional choices for repairs or rebuilding of vehicles.
Certain of our products are certified by independent organizations such as the Certified Automotive Parts Association
("CAPA") and NSF International ("NSF"). CAPA and NSF are associations that evaluate the functional equivalence of
aftermarket collision replacement products to OEM collision replacement products. Members of CAPA and NSF include
insurance companies, product distributors (including LKQ), collision repair shops and consumers. CAPA and NSF develop
engineering specifications for aftermarket collision replacement products based upon examinations of OEM products; certify
the factories, manufacturing processes and quality control procedures used by independent manufacturers; and certify the
materials, fit and finish of specific aftermarket collision replacement products.
LKQ is certified under the NSF International Automotive Parts Distributor Certification Program, which addresses the
needs of collision repair shops and insurers by maintaining quality management systems to address part traceability, service and
quality. This certification program complements the existing parts certification program with NSF under which LKQ has a
broad range of certified automotive collision replacement parts. Many major insurance companies have adopted policies
recommending or requiring the use of products certified by CAPA or NSF. A number of CAPA and NSF certified products are
also marketed under the Platinum Plus brand.
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We distribute paint and other materials used in repairing damaged vehicles, including sandpaper, abrasives, masking
products and plastic filler. The paint and other materials distributed by us are purchased from numerous suppliers in the U.S.
and Canada.
Procurement of Inventory
The aftermarket products we distribute are purchased from independent manufacturers and distributors located
primarily in the U.S. and Taiwan. In 2013, approximately 46% of our aftermarket purchases were made from our top five
vendors, with our largest vendor providing approximately 12% of our inventory. We believe we are one of the largest customers
of each of these suppliers. Outside of this group, no other supplier provided more than 5% of our supply of aftermarket
products in 2013. We purchased approximately 44% of our aftermarket products in 2013 directly from manufacturers in Taiwan
and other Asian countries. Approximately 56% of our aftermarket products were purchased from vendors located in the U.S.
and Canada, however, we believe the majority of these products were manufactured in Taiwan, Mexico or other foreign
countries. We have business arrangements with manufacturers to produce certain of our products. These agreements
automatically renew for additional 12 month periods unless written notice is given. While we compete with other distributors
for production capacity, we believe that our sources of supply and our relationships with our suppliers are satisfactory.
We usually receive orders from domestic suppliers within ten days from the date ordered. Foreign orders typically are
shipped in sea containers directly to certain of our aftermarket locations, and are received within 40 to 65 days from the date
ordered. We operate an aftermarket parts warehouse in Taiwan that aggregates inventory from certain of our vendors for
shipment to our North American locations. As of December 31, 2013, we operated 24 regional hubs and three distribution
centers, which act as sources for our warehouse locations that do not receive containers directly and serve as redistribution
centers for our operations. This structure is designed to maximize our fulfillment rates as smaller branches can have a high fill-
rate of next day availability.
Wholesale Recycled Products
Our recycled products include engines, transmissions, door assemblies, sheet metal products such as trunk lids,
fenders and hoods, lights and bumper assemblies. Some insurance companies mandate that the recycled products must be of
the same model year or newer as the vehicle being repaired. As a result, the majority of the products we sell are from vehicles
not more than ten years of age. Installing recycled products often means that collision shops not only save on product cost, but,
because several products may come pre-assembled, the shops are also able to reduce labor costs.
Procurement of Inventory
We procure recycled products for our wholesale operations by acquiring damaged or totaled vehicles. Vehicles that
have been declared "total losses" typically are sold at regional salvage auctions throughout the U.S. and Canada. Salvage
auctions charge fees both to the suppliers of vehicles, primarily insurance companies, and to the purchasers. Additionally, we
typically pay third parties fees to tow the vehicles from the auction to our facilities.
The availability of the salvage vehicles we procure for our late model recycled product operations may be impacted by
a variety of factors, including the production level of new vehicles (which provides the source from which salvage vehicles
ultimately come) and the portion of damaged vehicles declared total losses. Over the past several years, the frequency with
which vehicles are declared total losses has increased as a result¸ we believe, of the rise in repair costs relative to vehicle
replacement cost and salvage vehicle prices. In 2000, approximately 9% of accident claims resulted in a total loss; by 2013, this
percentage increased to almost 14%. Additionally, sales of new vehicles have increased since 2010 and are projected to
continue to increase over the next five years, which should result in a greater volume of salvage vehicles at auction.
In 2013, we acquired 273,000 salvage vehicles for our wholesale recycled product operations, primarily from salvage
auctions. Prior to the scheduled auction date, our salvage buyers may preview the auctions online to investigate the vehicles to
be sold and determine our interest in buying them. They obtain key information such as the model and mileage, and perform
visual damage assessments to determine which parts on the targeted vehicles are recyclable. With the data from this preview,
we deploy a bidding system that performs a valuation calculation for each vehicle. In order to recommend a maximum bid
price, the calculation incorporates demand for a vehicle's recyclable parts, current inventory levels, average selling prices,
auction costs, projected margins and instances of out-of-stock. Using this disciplined supply and demand procurement
approach, we place bids on the targeted vehicles.
Vehicle Processing
Vehicle processing for our wholesale recycled operations involves dismantling a salvage vehicle into recycled
products that are ready for sale. When a salvage vehicle arrives at one of our facilities, an inventory specialist identifies,
catalogs, and schedules the vehicle for dismantling. Prior to dismantling, we remove from each vehicle its fluids, Freon, and
parts containing hazardous substances or precious metals such as catalytic converters. The extracted fluids are stored in bulk
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and subsequently sold to recyclers. In the case of gasoline, the fuel retrieved is primarily used to power our delivery vehicles. A
small portion of the recycled motor oil we collect is used at certain of our plants that have high-efficiency oil burning furnaces;
the balance is sold to motor oil recyclers.
When ready for dismantling, each vehicle has an inventory report that indicates to the dismantler which parts should
be removed and placed in a warehouse for future sales to customers, which parts should be collected in bulk for our
refurbishing and remanufacturing operations or for sale to parts remanufacturers, and which parts have value but should remain
on the vehicle until sold. We utilize bar coding systems and wireless transmission to keep track of inventory from the time a
product is removed and inventoried, to the time it is sold and put on a truck for delivery.
Refurbished and Remanufactured Products
As of December 31, 2013, we operated 23 plastic bumper and bumper cover refurbishing plants, a chrome bumper
plating plant, 11 wheel refurbishing plants, a light refurbishing plant and four engine remanufacturing facilities.
When identifying the products that we refurbish or remanufacture, we focus on products that have high demand. The
majority of our refurbished and remanufactured products are processed from cores obtained from salvage vehicles purchased
by our recycled operations and damaged cores collected by our route delivery drivers from vehicles under repair by our
customers. These products are accumulated from our wholesale operations at our core sorting facilities, and are then either sent
to our refurbishing or remanufacturing facilities or sold in bulk to other mechanical remanufacturers.
Most of our refurbished and remanufactured products are sold through our wholesale distribution channels. The
balance is sold to retail automotive stores, wholesale distributors and via internet sales.
Heavy-Duty Truck Products
As of December 31, 2013, we operated a total of 26 heavy-duty truck facilities in the U.S. and Canada. Our inventory
is composed of used heavy- and medium-duty trucks, usually at least five years old, which are purchased at salvage and truck
auctions or directly from insurance companies or large fleet operators. During 2013, we purchased approximately 8,000
vehicles. Depending on the condition of the vehicles, they may be dismantled for parts or resold as running vehicles. If certain
mechanical parts are damaged, such as transmissions, we may remanufacture them and offer them to our customers. The
vehicles that are acquired for resale are typically special purpose or vocational use trucks such as those used for garbage pickup
or cement delivery. If requested by the sellers of the vehicles, we provide an assurance that the vehicles will be sold to foreign
buyers and exported to countries for use outside of the U.S., or to domestic buyers after the vehicles have been reconditioned
and modified for use other than their original purpose.
Scrap and Other Materials
Our wholesale recycled product operations generate scrap metal and other materials that we sell to recyclers. Vehicles
that have been dismantled for recycled products and "crush only" end of life vehicles acquired from other companies, including
OEMs, are typically crushed using equipment on site. In other cases, we will hire mobile crushing equipment to crush the
vehicles before they are transported to shredders and scrap metal processors. Damaged and unusable wheel cores are melted in
our aluminum furnace and sold to consumers of aluminum ingot and sow for the production of various automotive products,
including wheels. We also extract and sell the precious metals contained in certain of our salvage parts such as catalytic
converters.
Customers
We sell our products to wholesale customers that include collision and mechanical repair shops and new and used car
dealerships, as well as to retail customers. Customers of our heavy-duty truck products may also include owner/operators, local
cartage companies, or exporters. We also generate a portion of our revenue from scrap sales to metal recyclers. No single
customer accounted for 2% or more of our revenue in 2013.
Repair Shops and Others
We sell the majority of our wholesale products to collision and mechanical repair shops. Industry reports estimate
there were approximately 40,000 collision repair shops, including those owned by new car dealerships, in the U.S. in 2012.
The same reports estimate there were approximately 77,000 general (including mechanical) repair garages, excluding new car
dealership service departments, in the U.S. in 2012. The majority of these customers tend to be individually-owned small
businesses, although the number of independent and dealer-operated collision repair facilities has declined over the last decade,
as regional or national multiple location operators have increased their geographic presence through acquisitions. We also sell
our products to car rental companies and fleet management groups.
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Insurance Companies
Automobile insurance companies affect the demand for our collision products. While insurance companies do not pay
for our products directly, they ultimately pay for the repair costs of insured vehicles in excess of any deductible amount. As a
result, insurance companies often influence the types of products used in a repair.
Our presence in most major markets in the U.S. and Canada gives us a distinctive ability to benefit the major
automobile insurance companies. Insurance companies generally operate at a national or regional level. The use of our products
provides a direct benefit to these companies by lowering the cost of repairs, decreasing the time required to return the repaired
vehicle to the customer, and providing a replacement product that is of high quality and comparable performance to the part
replaced.
We assist insurance companies by providing high quality aftermarket, recycled, refurbished and remanufactured
products to collision repair shops, especially to repair shops that are part of an insurance company's Direct Repair Program
("DRP") network. A repair shop participating in a DRP is referred potential work from the insurance company in exchange for
providing assurances to the insurance company of quality, timeliness and cost. Industry reports indicate that over half of claims
paid for by the top insurance companies in 2012 were paid through a DRP, compared to 42% in 2009. To meet the needs of the
DRPs, professional repairers have been required to become fluent in claims handling. We offer our repair shop customers
access to our proprietary system, Keyless, which provides a link between their estimating systems and our inventory to identify
the availability of alternative products for use in their repair. This data also helps insurance companies monitor the body shops'
compliance with its DRP product guidelines that might, for instance, stipulate the use of the lowest cost products that meet
quality specifications. In addition, in some markets insurance companies are able to dispose of low value total loss vehicles
directly to us so they can save the transaction fees associated with selling these vehicles through salvage auctions.
Sales and Marketing
In the case of repairs paid for as a result of insurance claims, which industry publications estimate are approximately
85% of all repairs, insurance companies give collision repair shops directives as to what type of replacement products are
eligible for reimbursement. Typically insurance carriers have established a hierarchy or decision tree prioritizing the types of
products to be used for repairs. As an example, a protocol may require recycled products if available; if recycled products are
not available, then refurbished products; and, if recycled or refurbished products are not available, aftermarket products. If none
of these alternative product types is available, the shop may then use new OEM replacement products. As a body shop looks for
products for a repair, the sourcing of products typically begins with a call to one of our recycled operations or one of our
competitors. Our recycled sales personnel are encouraged to capture the sale as a "one-stop shop" and, if recycled products are
out of stock, to fill orders from our refurbished or aftermarket product inventory. To support these efforts, we have provided our
sales staff with access to both recycled and aftermarket sales systems, and we have developed sales incentive programs that
encourage cross selling throughout our wholesale operations.
As of December 31, 2013, we had approximately 2,150 full-time sales staff in our North American wholesale
operating segment. The full time sales personnel are located at sales desks at our facilities or at one of the regional call centers
we operate. We deploy a call routing system that redirects overflow calls to alternative call centers, typically located within the
same region. We also operate two other call centers, one to support national accounts, and the other to support insurance
adjusters' needs and questions. Our sales personnel are encouraged to initiate outbound calls in addition to the inbound calls
they handle. Our sales staff can use customer estimates from our Keyless estimating system to generate sales leads for both
aftermarket and recycled products.
We are continually reviewing and revising the pricing of wholesale products. Our pricing specialists consider factors
such as recent demand levels, inventory quantity on hand and turnover rates, new OEM product prices and local competitive
pricing, with the goal of optimizing revenue. We set list prices and then sell items at a discount to list, with the discount
typically based on each customer's purchasing volume. We may adjust prices during the year in response to material price
changes of new OEM replacement products.
We believe our commitment to stock inventory in local warehouses, supplemented by the inventory sharing system
within our regional trading zones, improves our ability to meet our customers' requirements more frequently than our
competitors and gives us a competitive advantage.
Distribution
We have a distribution network of 325 wholesale plants and warehouses across the U.S. and Canada as of December
31, 2013, of which 57 function as large hub or cross dock facilities. Our network of facilities allows us to develop and maintain
our relationships with local repair shops while providing a level of service that is made possible by our nationwide presence.
Our local presence allows us to provide daily deliveries as required by our customers, using drivers who routinely deliver to the
same customers. Our sales force and local delivery drivers develop and maintain critical personal relationships with the local
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repair shops that benefit from access to our wide selection of products, which we are able to offer as a result of our regional
inventory network.
We have developed an internal distribution network to allow our sales representatives to sell our products within
regional trading zones, thus improving our ability to fulfill customer requests and accelerating inventory turnover. Each
weekday we operate over 300 transfer runs between our cross dock facilities and our plants and warehouses within our regional
trading zones to redistribute our alternative products for delivery on the next day. In addition, we have approximately 2,700
local delivery routes serving our customers each weekday.
Each sale results in the generation of a work order at the location housing the specific product. A dispatcher is then
responsible for ensuring fulfillment accuracy, printing the final invoice, and including the product on the appropriate truck
route for delivery to the customer. In markets where we offer more than one alternative product type, we are integrating the
delivery of multiple product types on the same delivery routes to help minimize distribution costs and improve customer
service. We operate a delivery fleet of medium-sized trucks and smaller trucks and vans. Over time, we expect that our delivery
vehicles will become more consistent as we reconfigure the fleet to include vehicles that can carry all four product types.
Competition
We consider all suppliers of vehicle collision and mechanical products to be competitors, including aftermarket
suppliers, recycling businesses, refurbishing operations, parts remanufacturers, OEMs and internet-based suppliers. We believe
the principal areas of differentiation in our industry include availability of inventory, pricing, product quality and service.
The aftermarket product distribution business is highly fragmented and our competitors, other than OEMs, are
generally independently owned distributors with one to three distribution centers. Similarly, we compete with domestic vehicle
product recyclers, most of which are single-unit operators. In some markets, smaller competitors have organized affiliations to
share marketing and distribution resources, including internet sites. We compete with alternative parts distributors on the basis
of our nationwide distribution system, our product lines and inventory availability, customer service, our relationships with
insurance companies, and to a lesser extent, price. We do not consider retail chains that focus on the do-it-yourself market to be
our direct competitors since many of our wholesale product sales are paid for by insurance companies rather than the end user.
Manufacturers of new original equipment products sell the majority of automobile collision replacement products. We
believe, however, that the insurance and repair industries recognize advantages of using aftermarket, recycled, refurbished and
remanufactured products for collision repairs. Industry sources estimate that alternative collision parts usage in the United
States is approximately 37% to 38% currently. We compete with OEMs primarily on the basis of price and, to a lesser extent,
on service and product quality.
Self Service Retail Products
Our self service retail operations sell parts from older cars and light-duty trucks directly to consumers. In addition to
revenue from the sale of parts, core and scrap, we charge a nominal admission fee to access the property. Our self service
facilities typically consist of a fenced or enclosed area of several acres with vehicles stored outdoors and a retail building
through which customers are able to access the yard. As of December 31, 2013, we conducted our self service operations from
65 facilities in North America, most of which operate under the name "LKQ Pick Your Part."
Inventory
We acquire inventory for our self service retail product operations from a variety of sources, including but not limited
to towing companies, auctions, the general public, municipality sales, insurance carriers, and charitable organizations. We
typically procure salvage vehicles that are more than seven model years old for our self service retail product operations. These
vehicles are generally older and of lower quality than the salvage vehicles we purchase for our wholesale recycled product
operations. In 2013, we purchased approximately 513,000 lower cost self service and "crush only" vehicles.
Vehicles are delivered to our locations by the seller, or we arrange for transportation. Once on our property, minimal
labor is required to process the vehicle other than removing the fluids, Freon, catalytic converters and hazardous materials.
Vehicles are then placed in the yard for customers to remove parts. The vehicle inventory is usually organized according to
domestic and import cars (further organized by make), passenger vans and trucks. In our self service business, availability of a
specific part will depend on which vehicles are currently at the site and to what extent parts may have been previously sold.
We usually keep a vehicle at our facility for 30 to 75 days, generally depending on the capacity of the yard, before it is crushed
and sold to scrap metal processors. By maintaining a relatively short turnover period, we ensure that our inventory is
continually updated with different car options or removed from the yard when the saleable parts are depleted.
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Scrap and Other Materials
Our self service auto recycling operations generate scrap metal, alloys and other materials that we sell to recyclers.
Vehicles that we no longer make available to the public and "crush only" vehicles acquired from other companies, including
OEMs, are typically crushed using equipment on site.
Customers
The customers of our self service yards are frequently do-it-yourself mechanics, small independent repair shops
servicing older vehicles, and auto rebuilders. The scrap from the vehicle hulks, when not processed by us, is sold to metals
recyclers, with whom we may also compete when procuring salvage vehicles for our operations.
Sales and Marketing
We list part prices for automobiles and light-duty trucks on regularly updated price sheets, with prices varying by part
type, but not by make or model. For instance, four cylinder engines are priced the same regardless of vehicle make, model, age
or condition. While we do not consider retail automotive chains to be our direct competitors, as their product offerings are
focused on maintenance products and mechanical parts, we may reference their prices on certain parts as a benchmark to ensure
our prices remain competitive.
Competition
There are competitors operating self service businesses in all of the markets in which we operate. In some markets,
there are numerous competitors, often operating in close proximity to our operations. We try to differentiate our business by the
quality of the inventory and the size and cleanliness of the property.
EUROPE SEGMENT
Wholesale Automotive Products
Our European wholesale operating segment was formed in the fourth quarter of 2011 with our acquisition of ECP, a
leading distributor of automotive aftermarket parts in the U.K. ECP has approximately 7,000 employees with a large customer
base of both commercial and retail accounts. More than 80% of ECP’s revenue comes directly from the professional repair segment.
ECP’s main national distribution center supports its regional hubs and branch network with daily replenishment of stock, providing
our customers with what we believe to be the highest in-stock rate in the U.K. We continued to expand ECP’s distribution network
in 2013 by opening 15 new ECP locations in the U.K. As of December 31, 2013, we operated 171 selling locations, including
aftermarket parts branches and paint distribution locations, supported by a national distribution center and 12 regional hubs (many
of which are co-located with selling locations), which allows us to reach most major markets within the U.K.
To further expand our European segment, in May 2013 we acquired Sator. Headquartered in Schiedam, the Netherlands,
Sator is a market leading distributor of automotive aftermarket parts in Western Europe. Sator has over 800 employees at 11
distribution centers that serve a diverse base of repair shops through our warehouse distributor customers. In 2013, Sator's sales
included 135,000 SKUs. Sator generates approximately 90% of its revenue from sales in the Netherlands and Belgium, with the
remainder in Northern France and other European countries. The acquisition of Sator expands LKQ's European footprint, further
expands our European distribution network and provides a potential platform to capitalize on the large and fragmented mechanical
replacement part markets in Europe. Sator also complements our existing ECP operations in the U.K. by allowing for the potential
realization of cost savings from the leveraging of our combined purchasing power given the significant overlap in suppliers and
product mix.
In March 2012, we launched our European aftermarket collision parts program through our ECP branch network. We
believe the historically low alternative collision parts usage percentage in Europe, which is currently less than 10%, provides an
opportunity for us in this segment, particularly as insurance companies look to lower their costs. To further our commitment to
expanding our European alternative collision parts program and becoming a leading one-stop shop supplier to the collision repair
industry in the U.K., in August 2013 we acquired five paint distributors that reach most markets within the U.K.
With their respective distribution networks, IT infrastructure and unique customer base, we believe ECP and Sator will
serve as a platform to expand into complementary products to increase market penetration in this segment, as well as to further
develop a collision repair parts business throughout Europe similar to our wholesale operations in North America.
Inventory
Our inventory is primarily composed of mechanical aftermarket parts for the repair of vehicles 3 to 15 years old. Our
top selling products include brake pads, discs and sensors; clutches; electrical products such as spark plugs and batteries; oil
and automotive fluids; and filters. In 2013, our top six suppliers represented 25% of our inventory purchases, with our top
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supplier representing approximately 8% of our purchases. No suppliers outside of our top six suppliers provided more than 2%
of our purchases during 2013.
The aftermarket products we distribute are purchased from vendors located primarily in the U.K. and continental Europe.
In 2013, we purchased 89% of our products from companies in Europe. The remaining 11% of our 2013 purchases were sourced
from vendors located primarily in China or Taiwan, some of which also supply collision parts for our Wholesale - North American
operations.
Customers
In our U.K. operations, we sell the majority of our products to nearly 50,000 customers primarily consisting of professional
repairers, including both independent mechanical repair shops and collision repair shops. In addition to our sales to repair shops,
we generate a portion of our revenue through sales to retail customers from ECP’s e-commerce platform and from counter sales
at the branch locations. This retail component of ECP’s business has historically represented less than 10% of its revenue.
While Sator currently operates under a traditional three-step distribution model in which our immediate customer is the
local warehouse distributor, the demand for our products is driven by the needs of the same professional repairers we service in
our ECP operations. During 2013, we supplied over 9,500 repair shops through over 450 local warehouse distributor customers.
Sator markets directly to the mechanical repair shops through fliers and other promotional materials and provides software to the
repair shops, which the shops need for their operations.
Sales and Marketing
ECP’s customers will generally call a sales representative at the nearest branch to place an order. Using an electronic
automotive exchange and our integrated IT platform displaying inventory availability, our sales representatives locate the
appropriate replacement part for a customer. We set list prices for our products, and then apply a discount off of list, primarily
depending on each customer's purchasing volume. In 2012, we launched a business-to-business website with certain of our
customers to enable them to place product orders online through a customized interface that includes detailed parts
specifications, customer-specific pricing, and local branch availability and account information. We believe this customer
interface will result in fewer parts returns by improving order accuracy and will also reduce the time required by parts
specialists to advise customers. Whether placed via a phone order or online, customer orders are filled from the local branch or
routed to another location as necessary to fill the order.
Sator’s sales and marketing platform is a proprietary stock management system that provides repair shops, jobbers and
end users with an efficient system for ordering from our product catalog directly online. Through this online system, Sator is
able to actively monitor inventory levels at all stages in the aftermarket automotive parts value chain in its markets. Sator offers
products from six operating subsidiaries which include Van Heck & Co, Havam, Nipparts, Pauwels, Harrems Tools, and
Belgian Van Heck Interpieces, operating as commercially independent units.
Similar to our North American wholesale operations, insurance companies significantly influence the purchasing
decisions for collision products in Europe. As a result, we are attempting to establish business relationships with insurance
companies and implement insurer-based marketing models in the U.K. by emphasizing the cost savings that can be achieved
through the use of alternative parts. As we continue to grow our collision parts offerings in the U.K., we believe we will be
well-positioned to serve as a lower-cost alternative for insured repairs throughout Europe given the majority of U.K. carriers
offer coverage in multiple European countries outside of the U.K.
Distribution
Our European operations employ a distribution model in which inventory is stored at regional distribution centers or
hubs, with fast moving product stored at branch locations (in our ECP operations) or at local warehouse distributor customers (in
our Sator operations) for timely delivery to the repair shop customers. Product is moved through the distribution network on our
vans or via common carrier. In our ECP operations, we also sometimes employ a third party motorcycle fleet to deliver parts from
our branch locations to nearby repair shop customers; as a result, our ECP branches can deliver certain in-stock parts within one
hour.
Competition
We view all suppliers of replacement repair products as our competitors, including other alternative parts suppliers and
OEMs and their dealer networks. While we compete with all alternative parts suppliers, there are few with national distribution
networks like ECP and Sator that can reach the majority of repair shop customers within the required delivery time. We believe
we have been able to distinguish ourselves from other alternative parts suppliers primarily through our distribution network,
efficient stock management systems and proprietary technology which allows us to deliver our products quickly, as well as through
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our product lines and inventory availability, pricing and service. We compete with OEMs primarily on the basis of price, service
and availability.
EMPLOYEES
As of December 31, 2013, we had approximately 23,800 employees. We are a party to a collective bargaining
agreement with a union that represents 42 employees at our Totowa, New Jersey facility. Approximately 680 of our employees
at our bumper refurbishing and engine remanufacturing operations in Mexico and 170 of our employees at our recycled parts
facility in Quebec City, Canada are also represented by unions. Other than these locations, none of our employees is a member
of a union or participates in other collective bargaining arrangements. We consider our employee relations to be good.
FACILITIES
Our corporate headquarters are located at 500 West Madison Street, Chicago, Illinois 60661. We operate a field
support center in Nashville, Tennessee that performs certain centralized functions for our North American operations, including
accounting, procurement and information systems support. Our European operations maintain procurement, accounting and
finance functions in Wembley, outside of London, England and in Schiedam, Netherlands. In addition to these offices, we have
numerous operating facilities that handle wholesale and self service retail product operations. We operate out of more than 570
locations in total, most of which are leased. Many of our locations stock multiple product types or serve more than one
function.
Included in our total locations are 172 facilities in the U.K., including the 500,000 square foot national distribution
center in Tamworth that houses inventory to supply the hubs and branches of our U.K. operations. We also operate 30 facilities
in Canada, 11 facilities in continental Europe, five facilities in Central America, and a facility in Mexico. Additionally, we
operate an aftermarket parts warehouse in Taiwan to aggregate inventory for shipment to our locations in North America.
INFORMATION TECHNOLOGY
In our North American operations, our aftermarket operations use a third party enterprise management system.
Additional third party software packages have been implemented to leverage the centralized data and information that a single
system provides, such as a data warehouse to conduct enhanced analytics and reporting, an integrated budgeting system, an
electronic data interchange tool, and eCommerce tools to enhance our online business-to-business initiatives—
OrderKeystone.com and Keyless. The systems used by our aftermarket operations are also used by all of our refurbishing
operations.
Our wholesale recycled product locations in North America operate an internally-developed, proprietary enterprise
management system called LKQX. We believe that the use of a single system across all of our wholesale recycled product
operations helps facilitate the sales process, allows for continued implementation of standard operating procedures, and yields
improved training efficiency, employee transferability, access to our national inventory database, management reporting and
data storage. The system also supports an electronic exchange process for identifying and locating parts at other select recyclers
and facilitates brokered sales to fill customer orders for items not in stock.
We operate a single enterprise system for all of our heavy-duty truck operations that supports inter-region sales to
reduce the potential for lost sales due to out-of-stock parts. We are also transitioning to a single IT platform to support our
remanufacturing operations. We operate an internally-developed point of sale system in our self service retail operations,
which allows enhanced management reporting as well as improved system reliability.
Our aftermarket operations in the U.K. use a single integrated IT platform for our purchasing, branch stock, and
finance activities, which are further supported by a distribution center system to manage inventory movement. Our aftermarket
operations in continental Europe use several IT systems, which are linked to transfer data between systems, to manage
customer orders and inventory movement, and for financial reporting purposes.
The hardware that supports the systems used in our operations is located in offsite data centers. The centers are in
secure environments with around-the-clock monitoring, redundant power backup, and multiple, diverse data and
telecommunication routing. We use separate third party provided software for our financial systems such as financial and
budget reporting, general ledger accounting, accounts payable, payroll, and fixed assets. We currently protect our local
customer, inventory, and corporate consolidated data, such as financial information, e-mail files, and other user files, with daily
backups. These backups are stored off site with a third party data protection vendor. Additionally, we restrict access to
customer, employee and vendor data to those users that have permission granted to them as part of their job function. Customer
credit card information is not stored, and the card information is encrypted when it is processed for authorization.
We continually evaluate our systems with the goal of ensuring that all critical systems remain scalable and operational
as our business grows.
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REGULATION
Environmental Compliance
Our operations and properties are subject to extensive laws and regulations relating to environmental protection and
health and safety in the U.S. as well as other countries in which we operate. These environmental laws govern, among other
things, the emission and discharge of hazardous materials into the ground, air, or water; exposure to hazardous materials; and
the generation, handling, storage, use, treatment, identification, transportation, and disposal of industrial by-products, waste
water, storm water, and mercury and other hazardous materials.
We have made and will continue to make capital and other expenditures relating to environmental matters. We have an
environmental management process designed to facilitate and support our compliance with these requirements. We cannot
assure you, however, that we will at all times be in complete compliance with such requirements.
Although we presently do not expect to incur any capital or other expenditures relating to environmental controls or
other environmental matters in amounts that would be material to us, we may be required to make such expenditures in the
future. Environmental laws are complex, change frequently and have tended to become more stringent over time. Accordingly,
environmental laws may change or become more stringent in the future in a manner that could have a material adverse effect on
our business.
Contamination resulting from vehicle recycling processes can include soil and ground water contamination from the
release, storage, transportation, or disposal of gasoline, motor oil, antifreeze, transmission fluid, chlorofluorocarbons ("CFCs")
from air conditioners, other hazardous materials, or metals such as aluminum, cadmium, chromium, lead, and mercury.
Contamination from the refurbishment of chrome plated bumpers can occur from the release of the plating material.
Contamination can migrate on-site or off-site which can increase the risk, and the amount, of any potential liability.
In addition, many of our facilities are located on or near properties with a history of industrial use that may have
involved hazardous materials. As a result, some of our properties may be contaminated. Some environmental laws hold current
or previous owners or operators of real property liable for the costs of cleaning up contamination, even if these owners or
operators did not know of and were not responsible for such contamination. These environmental laws also impose liability on
any person who disposes of, treats, or arranges for the disposal or treatment of hazardous substances, regardless of whether the
affected site is owned or operated by such person, and at times can impose liability on companies deemed under law to be a
successor to such person. Third parties may also make claims against owners or operators of properties, or successors to such
owners or operators, for personal injuries and property damage associated with releases of hazardous or toxic substances.
When we identify a potential material environmental issue during our acquisition due diligence process, we analyze
the risks, and, when appropriate, perform further environmental assessment to verify and quantify the extent of the potential
contamination. Furthermore, where appropriate, we have established financial reserves for certain environmental matters. In
addition, at times we, or sellers from whom we purchased a business, have undertaken remediation projects. We do not
anticipate, based on currently available information and current laws, that we will incur liabilities in excess of reserves to
address environmental matters. However, in the event we discover new information or if laws change, we may incur significant
liabilities, which may exceed our reserves.
Title Laws
In some states, when a vehicle is deemed a total loss, a salvage title is issued. Whether states issue salvage titles is
important to the supply of inventory for the vehicle recycling industry because an increase in vehicles that qualify as salvage
vehicles provides greater availability and typically lowers the price of such vehicles. Currently, these titling issues are a matter
of state law. In 1992, the U.S. Congress commissioned an advisory committee to study problems relating to vehicle titling,
registration, and salvage. Since then, legislation has been introduced seeking to establish national uniform requirements in this
area, including a uniform definition of a salvage vehicle. The vehicle recycling industry will generally favor a uniform
definition, since it will avoid inconsistencies across state lines, and will generally favor a definition that expands the number of
damaged vehicles that qualify as salvage. However, certain interest groups, including repair shops and some insurance
associations, may oppose this type of legislation. National legislation has not yet been enacted in this area, and there can be no
assurance that such legislation will be enacted in the future.
Anti-Car Theft Act
In 1992, Congress enacted the Anti-Car Theft Act to deter trafficking in stolen vehicles. The purpose of the law is to
implement an electronic system to track and monitor vehicle identification numbers and major automotive parts. In January
2009, the U.S. Department of Justice implemented the portion of the system to track and monitor vehicle identification
numbers. The portion of the system that would track and monitor major automotive parts would require various entities,
including automotive parts recyclers like us, to inspect salvage vehicles for the purpose of collecting the part number for any
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"covered major part." The Department of Justice has not promulgated rules on this portion of the system, and therefore there
has been no progress on the implementation of the system to track and monitor major automotive parts. However, if this system
is fully implemented, the requirement to collect the information would place substantial burdens on vehicle recyclers, including
us, that otherwise would not normally exist. It would place similar burdens on repair shops, which may discourage the use by
such shops of recycled products. There is no pending initiative to implement the parts registration from a law enforcement point
of view. However, there is a risk that a heightened legislative concern over safety of parts might precipitate an effort to push for
the implementation of such rules.
Legislation Affecting Automotive Repair Parts
Most states have laws relating to the use of aftermarket products in motor vehicle collision repair work. The
provisions of these laws include consumer disclosure, vehicle owner's consent regarding the use of aftermarket products in the
repair process, and the requirement to have aftermarket products certified by an independent testing organization. Some
jurisdictions have laws that regulate the sale of certain recycled products that we provide, such as airbags. Additional laws of
this kind may be enacted in the future. An increase in the number of states passing such legislation with prohibitions or
restrictions that are more severe than current laws could have a material adverse impact on our business. Additionally, Congress
could enact federal legislation restricting the use of aftermarket and recycled automotive products used in the course of
collision repair.
SEASONALITY
Our operating results are subject to quarterly variations based on a variety of factors, influenced primarily by seasonal
changes in weather patterns. During the winter months, we tend to have higher demand for our collision products because there
are more weather related accidents, which generate repairs.
ITEM 1A.
RISK FACTORS
Risks Relating to Our Business
Our operating results and financial condition have been and could continue to be adversely affected by the economic
conditions in the U.S. and elsewhere.
In recent years, worldwide economic conditions have deteriorated significantly in many countries and regions,
including the United States, and such conditions may worsen in the foreseeable future. Such conditions have, in some periods,
resulted in fewer miles driven, fewer accident claims, and a reduction of vehicle repairs, all of which could negatively affect
our business. Our sales are also impacted by changes to the economic health of vehicle owners. The economic health of
vehicle owners is affected by many factors, including, among others, general business conditions, interest rates, inflation,
consumer debt levels, the availability of consumer credit, taxation, fuel prices, unemployment trends and other matters that
influence consumer confidence and spending. Many of these factors are outside of our control. If any of these conditions
worsen, our business, results of operations, financial condition and cash flows could be adversely affected.
In addition, economic conditions, including decreased access to credit, may result in financial difficulties leading to
restructurings, bankruptcies, liquidations and other unfavorable events for our customers, suppliers, logistics and other service
providers and financial institutions that are counterparties to our credit facilities and interest rate swap transactions. These
unfavorable events affecting our business partners could have an adverse effect on our business, results of operations, financial
condition and cash flows.
We face intense competition from local, national, international, and internet-based vehicle products providers, and this
competition could negatively affect our business.
The vehicle replacement products industry is highly competitive and is served by numerous suppliers of OEM,
recycled, aftermarket, refurbished and remanufactured products. Within each of these categories of suppliers, there are local
owner-operated companies, larger regional suppliers, national and international providers, and internet-based suppliers.
Providers of vehicle replacement products that have traditionally sold only certain categories of such products may decide to
expand their product offerings into other categories of vehicle replacement products, which may further increase competition.
Some of our current and potential competitors may have more operational expertise; greater financial, technical,
manufacturing, distribution, and other resources; longer operating histories; lower cost structures; and better relationships in the
insurance and vehicle repair industries or with consumers, than we do. In certain regions of the U.S., local vehicle recycling
companies have formed cooperative efforts to compete in the wholesale recycled products industry. Similarly in Europe, some
local companies are part of cooperative efforts to compete in the aftermarket parts industry. As a result of these factors, our
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competitors may be able to provide products that we are unable to supply, provide their products at lower costs, or supply
products to customers that we are unable to serve.
We believe that a majority of collision parts by dollar amount are supplied by OEMs, with the balance being supplied
by distributors like us. The OEMs are therefore in a position to exert pricing pressure in the marketplace. We compete with the
OEMs primarily on price and to a lesser extent on service and quality. From time to time, OEMs have experimented with
reducing prices on specific products to match the lower prices of alternative products. If such price reductions were to become
widespread, it could have a material adverse impact on our business.
Claims by OEMs relating to aftermarket products could adversely affect our business.
OEMs have attempted to use claims of intellectual property infringement against manufacturers and distributors of
aftermarket products to restrict or eliminate the sale of aftermarket products that are the subject of the claims. The OEMs have
brought such claims in federal court and with the U.S. International Trade Commission.
In December 2005 and May 2008, Ford Global Technologies, LLC filed complaints with the International Trade
Commission against us and others alleging that certain aftermarket products imported into the U.S. infringed on Ford design
patents. The parties settled these matters in April 2009 pursuant to a settlement arrangement that expires in March 2015. In
January 2014, Chrysler Group, LLC filed a complaint against us in the U.S. District Court in the Eastern District of Michigan
contending that certain aftermarket parts we sell infringe Chrysler design patents relating to the Dodge Ram pickup truck. The
Chrysler case is pending.
To the extent OEMs are seeking and obtaining more design patents than they have in the past and are successful in
asserting infringement of these patents and defending their validity, we could be restricted or prohibited from selling certain
aftermarket products, which could have an adverse effect on our business. We will likely incur significant expenses
investigating and defending intellectual property infringement claims. In addition, aftermarket products certifying organizations
may revoke the certification of parts that are the subject of the claims. Lack of certification may negatively impact us because
many major insurance companies recommend or require the use of aftermarket products only if they have been certified by an
independent certifying organization.
An adverse change in our relationships with our suppliers or auction companies could increase our expenses and impede
our ability to serve our customers.
Our business is dependent on a relatively small number of suppliers of aftermarket products, a large portion of which
are sourced from Taiwan. Although alternative suppliers exist for substantially all aftermarket products distributed by us, the
loss of any one supplier could have a material adverse effect on us until alternative suppliers are located and have commenced
providing products. Moreover, our operations are subject to the customary risks of doing business abroad, including, among
other things, natural disasters, transportation costs and delays, political instability, currency fluctuations and the imposition of
tariffs, import and export controls and other non-tariff barriers (including changes in the allocation of quotas), as well as the
uncertainty regarding future relations between China, Japan and Taiwan. Because a substantial volume of our sales involves
products manufactured from sheet metal, we can be adversely impacted if sheet metal becomes unavailable or is only available
at higher prices, which we may not be able to pass on to our customers. Additionally, as manufacturers convert to raw
materials other than steel, it may be more difficult or expensive to source aftermarket parts made with such materials and it may
be more difficult for repair shops to work with such materials in the repair process.
Most of our salvage and a portion of our self service inventory is obtained from vehicles offered at salvage auctions
operated by several companies that own auction facilities in numerous locations across the U.S. We do not typically have
contracts with the auction companies. According to industry analysts, a small number of companies control a large percentage
of the salvage auction market in the U.S. If an auction company prohibited us from participating in its auctions, began
competing with us, or significantly raised its fees, our business could be adversely affected through higher costs or the resulting
potential inability to service our customers. Moreover, we face competition in the purchase of vehicles from direct competitors,
rebuilders, exporters and others. To the extent that the number of bidders increases, it may have the effect of increasing our cost
of goods sold for wholesale recycled products. Some states regulate bidders to help ensure that salvage vehicles are purchased
for legal purposes by qualified buyers. Auction companies have been actively seeking to reduce, circumvent or eliminate these
regulations, which would further increase the number of bidders. In addition, there is a limited supply of salvage vehicles in the
U.S. As we grow and our demand for salvage vehicles increases, the costs of these incremental vehicles could be higher.
We also acquire inventory directly from insurance companies, OEMs, and others. To the extent that these suppliers
decide to discontinue these arrangements, our business could be adversely affected through higher costs or the resulting
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potential inability to service our customers.
We rely upon insurance companies to promote the usage of alternative parts.
Our success depends, in part, on the acceptance and promotion of alternative parts usage by automotive insurance
companies. Alternative parts usage has generally increased over the past ten years but has stabilized recently. There can be no
assurance that such usage will be maintained or will increase in the future. In addition, in some places we operate, alternative
parts usage is relatively low. We also rely on business relationships with insurance companies. These insurance companies
encourage vehicle repair facilities to use products we provide. The business relationships include in some cases participation in
aftermarket quality and service assurance programs that may result in a higher usage of our aftermarket products than would be
the case without the programs. Our arrangements with these companies may be terminated by them at any time, including in
connection with their own business concerns relating to the offering, availability, standards or operations of the aftermarket
quality and service assurance programs. We rely on these relationships for sales to some collision repair shops, and a
termination of these relationships may result in a loss of sales, which could adversely affect our results of operations.
In an Illinois lawsuit involving State Farm Mutual Automobile Insurance Company ("Avery v. State Farm"), a jury
decided in October 1999 that State Farm breached certain insurance contracts with its policyholders by using non-OEM
replacement products to repair damaged vehicles when use of such products did not restore the vehicle to its "pre-loss
condition." The jury found that State Farm misled its customers by not disclosing the use of non-OEM replacement products
and the alleged inferiority of those products. The jury assessed damages against State Farm of $456 million, and the judge
assessed an additional $730 million of disgorgement and punitive damages for violations of the Illinois Consumer Fraud Act. In
April 2001, the Illinois Appellate Court upheld the verdict but reduced the damage award by $130 million because of
duplicative damage awards. On August 18, 2005, the Illinois Supreme Court reversed the awards made by the circuit court and
found, among other things, that the plaintiffs had failed to establish any breach of contract by State Farm. The U.S. Supreme
Court declined to hear an appeal of this case. As a result of this case, some insurance companies reduced or eliminated their use
of aftermarket products. Our financial results could be adversely affected if insurance companies modified or terminated the
arrangements pursuant to which repair shops buy aftermarket or recycled products from us due to a fear of similar claims.
We may not be able to sell our products due to existing or new laws and regulations prohibiting or restricting the sale of
aftermarket, recycled, refurbished or remanufactured products.
Some jurisdictions have enacted laws prohibiting or severely restricting the sale of certain recycled products that we
provide, such as airbags. These and other jurisdictions could enact similar laws or could prohibit or severely restrict the sale of
additional recycled products. In addition, the Federal Trade Commission (FTC) has issued guides which regulate the use of
certain terms such as “rebuilt” or “remanufactured” in connection with the sale of automotive parts. Restrictions on the
products we are able to sell and on the marketing of such products could decrease our revenue and have an adverse effect on
our business and operations.
Most states have passed laws that prohibit or limit the use of aftermarket products in collision repair work and/or
require enhanced disclosure or vehicle owner consent before using aftermarket products in such repair work. Additional
legislation of this kind may be introduced in the future. If additional laws prohibiting or restricting the use of aftermarket
products are passed, it could have an adverse impact on our aftermarket products business. Certain organizations test the quality
and safety of vehicle replacement products. If these organizations decide not to test a particular vehicle product or in the event
that such organizations decide that a particular vehicle product does not meet applicable quality or safety standards, we may
decide to discontinue sales of such product or insurance companies may decide to discontinue authorization of repairs using
such product. Such events could adversely affect our business.
We may not be able to successfully acquire new businesses or integrate acquisitions, which could cause our business to
suffer.
We may not be able to successfully complete potential strategic acquisitions if we cannot reach agreement on
acceptable terms or for other reasons. Moreover, we may not be able to identify a sufficient number of acquisition candidates at
reasonable prices to maintain our growth objectives. Also, over time, we will likely seek to make acquisitions that are relatively
larger as we grow. Larger acquisition candidates may attract additional competitive buyers, which could increase our cost or
could cause us to lose such acquisitions.
If we buy a company or a division of a company, we may experience difficulty integrating that company's or division's
personnel and operations, which could negatively affect our operating results. In addition:
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the key personnel of the acquired company may decide not to work for us;
customers of the acquired company may decide not to purchase products from us;
suppliers of the acquired company may decide not to sell products to us;
we may experience business disruptions as a result of information technology systems conversions;
we may experience additional financial and accounting challenges and complexities in areas such as tax
planning, treasury management, and financial reporting;
we may be held liable for environmental, tax or other risks and liabilities as a result of our acquisitions, some of
which we may not have discovered during our due diligence;
we may intentionally assume the liabilities of the companies we acquire, which could result in material adverse
affects on our business;
our existing business may be disrupted or receive insufficient management attention;
we may not be able to realize the cost savings or other financial benefits we anticipated, either in the amount or
in the time frame that we expect; and
we may incur debt or issue equity securities to pay for any future acquisition, the issuance of which could
involve the imposition of restrictive covenants or be dilutive to our existing stockholders.
Our annual and quarterly performance may fluctuate.
Our revenue, cost of goods sold, and operating results have fluctuated on a quarterly and annual basis in the past and
can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control.
Future factors that may affect our operating results include, but are not limited to, those listed in the Special Note on Forward-
Looking Statements in this Annual Report on Form 10-K. Accordingly, our results of operations may not be indicative of future
performance. These fluctuations in our operating results may cause our results to fall below the expectations of public market
analysts and investors, which could cause our stock price or the value of our debt instruments to decline.
Fluctuations in the prices of metals or shipping costs could adversely affect our financial results.
Our recycling operations generate scrap metal and other metals that we sell. After we dismantle a salvage vehicle for
wholesale parts and after vehicles have been used in our self service retail business, the remaining vehicle hulks are sold to
scrap processors and other remaining metals are sold to processors and brokers of metals. In addition, we receive "crush only"
vehicles from other companies, including OEMs, which we dismantle and which generate scrap metal and other metals. The
prices of scrap and other metals have historically fluctuated, sometimes significantly, due to market factors. In addition, buyers
may stop purchasing metals entirely due to excess supply. To the extent that the prices of metals decrease materially or buyers
stop purchasing metals, our revenue from such sales will suffer and a write-down of our inventory value could be required. The
cost of our wholesale recycled and our self service retail inventory purchases will change as a result of fluctuating scrap metal
and other metals prices. In a period of falling metal prices, there can be no assurance that our inventory purchasing cost will
decrease the same amount or at the same rate as the scrap metal and other metals prices decline, and there may be a delay
between the scrap metal and other metals price reductions and any inventory cost reductions. The price of steel is a component
of the cost to manufacture products for our aftermarket business. We incur substantial freight costs to import parts from our
suppliers, many of whom are located in Asia. If the cost of steel or freight rose we might not be able to pass the cost increases
on to our customers.
If we determine that our goodwill or other intangible assets have become impaired, we may incur significant charges to our
pre-tax income.
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. In
the future, goodwill and intangible assets may increase as a result of acquisitions. Goodwill is reviewed at least annually for
impairment. Impairment may result from, among other things, deterioration in the performance of acquired businesses,
increases in our cost of capital, adverse market conditions, and adverse changes in applicable laws or regulations, including
modifications that restrict the activities of the acquired business. As of December 31, 2013, our total goodwill subject to future
impairment testing was $1.9 billion. For further discussion of our annual impairment test, see "Goodwill Impairment" in the
Critical Accounting Policies and Estimates section of Item 7 in this Annual Report on Form 10-K.
We amortize other intangible assets over the assigned useful lives, which is based upon the expected period to be
benefited. We review other intangible assets for possible impairment whenever events or circumstances indicate that the
carrying value may not be recoverable. In the event conditions change that affect our ability to realize the underlying cash
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flows associated with our intangible assets, we may record an impairment charge. As of December 31, 2013, the value of our
other intangible assets, net of accumulated amortization, was $154 million.
If the number of vehicles involved in accidents declines or the number of cars being repaired declines, our business could
suffer.
Our business depends on vehicle accidents and mechanical failures for both the demand for repairs using our products
and the supply of recycled, remanufactured and refurbished parts. Thus, our business is impacted by factors which influence
the number and/or severity of accidents and mechanical failures including, but not limited to, the number of vehicles on the
road, the number of miles driven, the ages of drivers, the occurrence and severity of certain weather conditions, the congestion
of traffic, the use of cellular telephones and other electronic equipment by drivers, the use of alcohol and drugs by drivers, the
effectiveness of accident avoidance systems in new vehicles, the reliability of new OEM parts, and the condition of roadways.
Additionally, an increase in fuel prices may cause the number of vehicles on the road, the number of miles driven, and the need
for mechanical repairs and maintenance to decline, as motorists seek alternative transportation options. Mild weather
conditions, particularly during winter months, tend to result in a decrease of vehicle accidents. Moreover, a number of states
and municipalities have adopted, or are considering adopting, legislation banning the use of handheld cellular telephones or
other electronic devices while driving, and such restrictions could lead to a decline in accidents. To the extent OEMs develop or
are mandated by law to install new accident avoidance systems, the number and severity of accidents could decrease.
The average number of new vehicles sold annually has fluctuated from year-to-year. Periods of decreased sales could
result in a reduction in the number of vehicles on the road and consequently fewer vehicles involved in accidents or in need of
mechanical repair or maintenance. Substantial further declines in automotive sales in the future could have a material adverse
effect on our business, results of operations and/or financial condition. In addition, if vehicle population trends result in a
disproportionately high number of older vehicles on the road, insurance companies may find it uneconomical to repair such
vehicles or there could be less costly repairs. If vehicle population trends result in a disproportionately high number of newer
vehicles on the road, the demand generally for mechanical repairs and maintenance would likely decline due to the newer,
longer-lasting parts in the vehicle population and mechanical failures being covered by OEM warranties for the first years of a
vehicle's life. Moreover, alternative collision and mechanical parts are less likely to be used on newer vehicles.
Governmental agencies may refuse to grant or renew our operating licenses and permits.
Our operating subsidiaries must obtain licenses and permits from state and local governments to conduct their
operations. When we develop or acquire a new facility, we must seek the approval of state and local units of government.
Governmental agencies may resist the establishment of a vehicle recycling or refurbishing facility in their communities. There
can be no assurance that future approvals or transfers will be granted. In addition, there can be no assurance that we will be able
to maintain and renew the licenses and permits our operating subsidiaries currently hold.
If we lose our key management personnel, we may not be able to successfully manage our business or achieve our
objectives.
Our future success depends in large part upon the leadership and performance of our executive management team and
key employees at the operating level. If we lose the services of one or more of our executive officers or key employees, or if
one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to
successfully manage our business or achieve our business objectives. If we lose the services of any of our key employees at the
operating or regional level, we may not be able to replace them with similarly qualified personnel, which could harm our
business.
We rely on information technology and communication systems in critical areas of our operations and a disruption relating
to such technology could harm our business.
Some of the information technology systems and communication systems we use for management of our facilities and
our financial functions are leased from or operated by other companies, while others are owned by us. In the event that the
providers of these systems terminate their relationships with us or if we suffer prolonged outages of these or our own systems
for whatever reason, we could suffer disruptions to our operations.
In addition, we continually monitor these systems to find areas for improvement. In the event that we decided to
switch providers or to implement our own systems, we may also suffer disruptions to our business. We may be unsuccessful in
the development of our own systems, and we may underestimate the costs and expenses of developing and implementing our
own systems. Also, our revenue may be hampered during the period of implementing an alternative system, which period could
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extend longer than we anticipated.
Our business involves the storage of personal information about our customers and employees. We have taken reasonable
and appropriate steps to protect this information; however, if we experience a significant data security breach, we could be exposed
to damage to our reputation, additional costs, lost sales or possible regulatory action. The regulatory environment related to
information security and privacy is constantly changing, and compliance with those requirements could result in additional
costs. There is no guarantee that the procedures that we have implemented to protect against unauthorized access to secured data
are adequate to safeguard against all data security breaches, and such a breach could potentially have a negative impact on our
results of operations and financial condition.
Business interruptions in our distribution centers or other facilities may affect our operations, the function of our computer
systems, and/or the availability and distribution of merchandise, which may affect our business.
Weather, terrorist activities, war or other disasters, or the threat of any of them, may result in the closure of our distribution
centers (“DC”s) or other facilities or may adversely affect our ability to deliver inventory through our system on a timely basis. This
may affect our ability to timely provide products to our customers, resulting in lost sales or a potential loss of customer loyalty. Some
of our merchandise is imported from other countries and these goods could become difficult or impossible to bring into the United
States or into the other countries in which we operate, and we may not be able to obtain such merchandise from other sources at
similar prices. Such a disruption in revenue could potentially have a negative impact on our results of operations and financial
condition.
If we experience problems with our fleet of trucks, our business could be harmed.
We use a fleet of trucks to deliver the majority of the products we sell. We are subject to the risks associated with
providing trucking services, including inclement weather, disruptions in the transportation infrastructure, governmental
regulation, availability and price of fuel, liabilities arising from accidents to the extent we are not covered by insurance, and
insurance premium increases. In addition, our failure to deliver products in a timely and accurate manner could harm our
reputation and brand, which could have a material adverse effect on our business.
We are subject to environmental regulations and incur costs relating to environmental matters.
We are subject to various federal, state, and local environmental protection and health and safety laws and regulations
governing, among other things: the emission and discharge of hazardous materials into the ground, air, or water; exposure to
hazardous materials; and the generation, handling, storage, use, treatment, identification, transportation, and disposal of
industrial by-products, waste water, storm water, and mercury and other hazardous materials. We are also required to obtain
environmental permits from governmental authorities for certain of our operations. If we violate or fail to obtain or comply
with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. We could also become liable
if employees or other parties are improperly exposed to hazardous materials.
Under certain environmental laws, we could be held responsible for all of the costs relating to any contamination at, or
migration to or from, our or our predecessors' past or present facilities and at independent waste disposal sites. These laws often
impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous
substances.
Environmental laws are complex, change frequently, and have tended to become more stringent over time. Our costs
of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future
releases of, or exposure to, hazardous substances, may adversely affect our business, results of operations, or financial
condition.
We could be subject to product liability claims and involved in product recalls.
If customers of repair shops that purchase our products are injured or suffer property damage, we could be subject to
product liability claims by such customers. The successful assertion of this type of claim could have an adverse effect on our
business, results of operations or financial condition. In addition, we may become involved in the recall of a product that is
determined to be defective. The expenses of a recall and the damage to our reputation could have an adverse effect on our
business, results of operations or financial condition.
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We have agreed to defend and indemnify in certain circumstances insurance companies and customers against claims
and damages relating to product liability and product recalls. The existence of claims or damages for which we must defend
and indemnify these parties could also negatively impact our business, results of operations or financial condition.
Regulations that may be issued under the Anti-Car Theft Act could harm our business.
In 1992, Congress enacted the Anti-Car Theft Act to deter trafficking in stolen vehicles. The purpose of the law is to
implement an electronic system to track and monitor vehicle identification numbers and major automotive parts. In January
2009, the U.S. Department of Justice implemented the portion of the system to track and monitor vehicle identification
numbers. The portion of the system that would track and monitor major automotive parts would require various entities,
including automotive parts recyclers like us, to inspect salvage vehicles for the purpose of collecting the part number for any
"covered major part." The Department of Justice has not promulgated rules on this portion of the system, and therefore there
has been no progress on the implementation of the system to track and monitor major automotive parts. However, if this system
is fully implemented, the requirement to collect the information would place substantial burdens on automotive parts recyclers,
including us, that otherwise would not normally exist. It would place similar burdens on repair shops, which may discourage
the use of recycled products by such shops.
We operate in foreign jurisdictions, which exposes us to foreign exchange and other risks.
We have operations in the U.K., Canada, Mexico, Taiwan, the Netherlands, Belgium, France, Guatemala and Costa
Rica, and we may expand our operations into other countries. Our foreign operations expose us to additional risks associated
with international business, which could have an adverse effect on our business, results of operations and/or financial condition,
including import and export requirements and compliance with anti-corruption laws, such as the U.K. Bribery Act 2010 and the
Foreign Corrupt Practices Act. We also incur costs in currencies, other than our functional currencies, in the countries in which
we operate. We are thus subject to foreign exchange exposure to the extent that we operate in different currencies, as well as
exposure to foreign tax and other foreign and domestic laws. In addition, Mexico is currently experiencing a heightened level
of criminal activity that could affect our ability to maintain our supply of certain aftermarket products.
New regulations related to conflict-free minerals may force us to incur additional expenses and otherwise adversely impact
our business.
In August 2012, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted
final rules regarding disclosure of the use of certain minerals, known as conflict minerals, originating from the Democratic
Republic of Congo (DRC) or adjoining countries. These new requirements will require ongoing due diligence efforts, with
initial disclosure requirements beginning in 2014. Our supply chain is complex and we may incur significant costs to determine
the source of any such minerals used in our products. We may also incur costs with respect to potential changes to products,
processes or sources of supply as a consequence of our diligence activities. Further, the implementation of these rules and their
effect on customer, supplier and/or consumer behavior could adversely affect the sourcing, supply and pricing of materials used
in our products. As there may be only a limited number of suppliers offering products free of conflict minerals in some
circumstances, we cannot be sure that we will be able to obtain necessary products from such suppliers in sufficient quantities
or at competitive prices. We may face reputational challenges if we determine that certain of our products contain minerals not
determined to be conflict-free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products
through the procedures we implement. Accordingly, the implementation of these rules could have a material adverse effect on
our business, results of operations and/or financial condition.
Risks Relating to Our Common Stock and Financial Structure
Future sales of our common stock or other securities may depress our stock price.
We and our stockholders may sell shares of common stock or other equity, debt or instruments which constitute an
element of our debt and equity (collectively, "securities") in the future. We may also issue shares of common stock under our
equity incentive plan or in connection with future acquisitions. We cannot predict the size of future issuances of securities or
the effect, if any, that future issuances and sales of shares of our common stock or other securities will have on the price of our
common stock. Sales of substantial amounts of common stock (including shares issued in connection with an acquisition), the
issuance of additional debt securities, or the perception that such sales or issuances could occur, may cause the price of our
common stock to fall.
The market price of our common stock may be volatile and could expose us to securities class action litigation.
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The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic
and market conditions. The market price for our common stock may also be affected by our ability to meet analysts’
expectations. Failure to meet such expectations, even slightly, could have an adverse effect on the market price of our common
stock. In addition, stock market volatility has had a significant effect on the market prices of securities issued by many companies
for reasons unrelated to the operating performance of these companies. Downturns in the stock market may cause the price of
our common stock to decline. Additionally, the market price for our common stock has been in the past, and in the future may
be, adversely affected by allegations made or reports issued by short sellers, analysts or others regarding our business model, our
management or our financial accounting.
Following periods of volatility in the market price of a company’s securities, securities class action litigation has often
been instituted against such companies. If similar litigation were instituted against us, it could result in substantial costs and a
diversion of our management’s attention and resources, which could have an adverse effect on our business.
Delaware law, our charter documents and our loan documents may impede or discourage a takeover, which could affect the
price of our stock.
The anti-takeover provisions of our certificate of incorporation and bylaws, our loan documents and Delaware law
could, together or separately, impose various impediments to the ability of a third party to acquire control of us, even if a
change in control would be beneficial to our existing stockholders. Our certificate of incorporation and bylaws have provisions
that could discourage potential takeover attempts and make attempts by stockholders to change management more difficult.
Our credit agreement provides that a change of control is an event of default. Our incorporation under Delaware law and these
provisions could also impede an acquisition, takeover, or other business combination involving us or discourage a potential
acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the price of our
common stock.
We have a substantial amount of indebtedness, which could have a material adverse effect on our financial condition and
our ability to obtain financing in the future and to react to changes in our business.
As of December 31, 2013, we had $1,305.8 million aggregate principal amount of debt outstanding. Our significant
amount of debt and our debt service obligations could limit our ability to satisfy our obligations, limit our ability to operate our
business and impair our competitive position.
For example, it could:
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increase our vulnerability to adverse economic and general industry conditions, including interest rate fluctuations,
because a portion of our borrowings are and will continue to be at variable rates of interest;
require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would
reduce the availability of our cash flow from operations to fund working capital, capital expenditures or other general
corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and industry;
place us at a disadvantage compared to competitors that may have proportionately less debt;
limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants in
our debt agreements; and
increase our cost of borrowing
As of December 31, 2013, we also had $1,070.6 million of undrawn availability (after giving effect to approximately
$45.6 million of outstanding letters of credit) under our revolving credit facility and $80.0 million of undrawn availability
under our accounts receivable securitization program. In January 2014, we increased our borrowings under our revolving credit
facility by $370 million and borrowed the full amount available under our accounts receivable securitization program, primarily
to finance our acquisition of Keystone Specialty. If we or our subsidiaries incur additional debt, the risks associated with our
substantial leverage and the ability to service such debt would increase.
Our senior secured credit facilities impose significant operating and financial restrictions on us and our subsidiaries, which
may prevent us from capitalizing on business opportunities.
Our senior secured credit facilities impose significant operating and financial restrictions on us. These restrictions
limit our ability, among other things, to:
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incur, assume or permit to exist additional indebtedness (including guarantees thereof);
pay dividends or certain other distributions on our capital stock or repurchase our capital stock or prepay subordinated
indebtedness;
incur liens on assets;
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receive dividend payments or other payments from our restricted subsidiaries;
engage in transactions with affiliates;
sell certain assets or merge or consolidate with or into other companies;
guarantee indebtedness; and
alter the business that we conduct.
As a result of these covenants and restrictions, we will be limited in how we conduct our business and we may be
unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities.
The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will
be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers
from the lenders and/or amend the covenants. The failure to comply with any of these covenants would cause a default under
the credit agreement. A default, if not waived, could result in acceleration of our debt, in which case the debt would become
immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it.
Even if new financing were available, it may be on terms that are less attractive to us than our existing credit facilities or it may
be on terms that are not acceptable to us.
We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to
satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and
operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business
and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities
sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital
resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital
expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures
may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating results and
available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to
consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be
adequate to meet any debt service obligations then due. Any future refinancing of our indebtedness could be at higher interest
rates and may require us to comply with more onerous covenants which could further restrict our business operations.
Additionally, the senior secured credit facilities limit the use of the proceeds from any disposition of our assets; as a result, our
senior secured credit facilities may prevent us from using the proceeds from such dispositions to satisfy our debt service
obligations.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to
increase significantly.
Certain borrowings under our senior secured credit facilities and the borrowing under our accounts receivable
securitization facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt
service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and
our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.
We rely on an accounts receivable securitization program for a portion of our liquidity.
We have an arrangement whereby we sell an interest in a portion of our accounts receivable to a special purpose
vehicle and receive funding through the commercial paper market. This arrangement expires in September 2015. In the event
that the market for commercial paper were to close or otherwise become constrained, our cost of credit relative to this program
could rise, or credit could be unavailable altogether.
24
Our future capital needs may require that we seek to refinance our debt or obtain additional debt or equity financing, events
that could have a negative effect on our business.
We may need to raise additional funds in the future to, among other things, refinance existing debt, fund our existing
operations, improve or expand our operations, respond to competitive pressures, or make acquisitions. From time to time, we
may raise additional funds through public or private financing, strategic alliances, or other arrangements. However, turmoil in
the credit markets could result in tight credit conditions, which could affect our ability to raise additional funds. If adequate
funds are not available on acceptable terms, we may be unable to meet our business or strategic objectives or compete
effectively. If we raise additional funds by issuing equity securities, stockholders may experience dilution of their ownership
interests, and the newly issued securities may have rights superior to those of the common stock. If we raise additional funds by
issuing debt, we may be subject to higher borrowing costs and further limitations on our operations. If we refinance or
restructure our debt, we may incur charges to write off the unamortized portion of deferred debt issuance costs from a previous
financing, or we may incur charges related to hedge ineffectiveness from our interest rate swap obligations. If we fail to raise
capital when needed, our business may be negatively affected.
A downgrade in our credit rating would impact our cost of capital and could impact the market value of our senior
unsecured notes.
Credit ratings have an important effect on our cost of capital. The evaluations are based upon, among other factors,
our financial strength. We believe our current credit ratings enhance our ability to borrow funds at favorable rates. A
downgrade in our current credit rating from a rating agency could adversely affect our cost of capital by causing us to pay a
higher interest rate on borrowed funds under our credit facilities. A downgrade could also adversely affect the market price
and/or liquidity of our notes, preventing a holder from selling the notes at a favorable price, as well as adversely affect our
ability to issue new notes in the future.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our properties are described in Item 1 of this Annual Report on Form 10-K, and such description is incorporated by
reference into this Item 2. Our properties are sufficient to meet our present needs, and we do not anticipate any difficulty in
securing additional space to conduct operations or additional office space, as needed, on terms acceptable to us.
ITEM 3.
LEGAL PROCEEDINGS
The Office of the District Attorney of Harris County, Texas has been investigating a possible violation of the Texas
Clean Water Act in connection with alleged discharges of petroleum products at two of our facilities in Texas. We are in
negotiations with the Office of the District Attorney to resolve this matter. The resolution will likely involve a monetary
payment to Harris County for the alleged violations at each location. The amount of each payment individually and the amount
of the payments in the aggregate are expected to have a de minimis effect on our financial position, results of operations and
cash flows.
In addition, we are from time to time subject to various claims and lawsuits incidental to our business. In the opinion
of management, currently outstanding claims and suits will not, individually or in the aggregate, have a material adverse effect
on our consolidated financial statements.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
25
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol "LKQ." At
December 31, 2013 there were 26 record holders of our common stock. The following table sets forth, for the periods indicated,
the range of the high and low sales prices of shares of our common stock on NASDAQ.
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 16.78
$ 15.06
18.67
20.02
22.29
23.99
26.58
32.29
34.32
14.63
16.52
18.38
20.09
20.28
25.38
30.61
We have not paid any cash dividends on our common stock. We intend to continue to retain our earnings to finance our
growth and for general corporate purposes. We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. In addition, our senior secured credit agreement and our senior notes indenture contain, and future financing
agreements may contain, limitations on payment of cash dividends or other distributions of assets. Based on limitations in
effect under our senior secured credit agreement and senior notes indenture as of December 31, 2013, the maximum amount of
dividends we could pay in a fiscal year is approximately $125 million. The annual limit on the payment of dividends is
calculated using historical financial information and will change from period to period.
The following graph compares the percentage change in the cumulative total returns on our common stock, the
NASDAQ Stock Market (U.S.) Index and the following group of peer companies (the "Peer Group"): Copart, Inc.; O'Reilly
Automotive, Inc.; Genuine Parts Company; and Fastenal Co., for the period beginning on December 31, 2008 and ending on
December 31, 2013 (which was the last day of our 2013 fiscal year). The stock price performance in the following graph is not
necessarily indicative of future stock price performance. The graph assumes that the value of an investment in each of the
Company's common stock, the NASDAQ Stock Market (U.S.) Index and the Peer Group was $100 on December 31, 2008 and
that all dividends, where applicable, were reinvested.
26
Comparison of Cumulative Return
Among LKQ Corporation, the NASDAQ Stock Market (U.S.) Index and the Peer Group
LKQ Corporation
NASDAQ Stock Market (U.S.) Index
Peer Group
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
$
$
$
100
100
100
$
$
$
168
126
119
$
$
$
195
159
168
$
$
$
258
181
226
$
$
$
362
194
251
$
$
$
564
250
316
This stock performance information is "furnished" and shall not be deemed to be "soliciting material" or subject to
Rule 14A, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject
to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934, whether made before or after the date of this report and irrespective of any general
incorporation by reference language in any such filing, except to the extent that it specifically incorporates the information by
reference.
Information about our common stock that may be issued under our equity compensation plans as of December 31,
2013 included in Part III, Item 12 of this Annual Report on Form 10-K is incorporated herein by reference.
27
ITEM 6.
SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report on Form 10-K and our consolidated
financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.
(in thousands, except per share data)
Statements of Income Data:
Revenue
Cost of goods sold
Gross margin
Operating income
Other (income) expense
Interest expense
Other (income) expense, net
Income from continuing operations before
provision for income taxes
Provision for income taxes
Income from continuing operations
Basic earnings per share from continuing
operations
Diluted earnings per share from continuing
operations
Weighted average shares outstanding-basic
Weighted average shares outstanding-diluted
Year Ended December 31,
2013
(a)
2012
(b)
2011
(c)
2010
(d)
2009
(e)
$ 5,062,528
$ 4,122,930
$ 3,269,862
$ 2,469,881
$ 2,047,942
2,987,126
2,075,402
530,180
2,398,790
1,724,140
437,953
1,877,869
1,391,993
361,483
1,376,401
1,093,480
297,877
1,120,129
927,813
231,448
51,184
3,169
475,827
164,204
311,623
1.04
1.02
299,574
304,131
$
$
$
31,429
(2,643)
409,167
147,942
261,225
0.88
0.87
295,810
300,693
$
$
$
24,307
1,405
335,771
125,507
210,264
0.72
0.71
292,252
296,750
$
$
$
29,765
(2,013)
32,252
(6,121)
270,125
103,007
167,118
0.58
0.57
286,542
291,714
$
$
$
205,317
78,180
127,137
0.45
0.44
281,082
287,980
$
$
$
Other Financial Data:
Net cash provided by operating activities
$
Net cash used in investing activities
Net cash (used in) provided by financing
activities
Capital expenditures
Business acquisitions(f)
Depreciation and amortization
Balance Sheet Data:
Total assets
Working capital
2013
2012
2011
2010
2009
Year Ended December 31,
428,056
(505,606)
$
206,190
(352,534)
$
211,772
(571,607)
$
159,183
(191,583)
$
164,002
(102,494)
165,941
90,186
408,384
86,463
157,072
88,255
265,336
70,165
311,411
86,416
486,934
54,505
18,962
61,438
143,578
41,428
(33,165)
55,870
65,171
38,062
Long-term obligations, including current portion
1,305,781
Stockholders' equity
2,350,745
$ 4,518,774
$ 3,723,456
$ 3,199,704
$ 2,299,509
$ 2,020,121
1,121,864
896,407
1,118,478
1,964,094
752,042
956,076
611,555
600,954
526,125
603,045
1,644,085
1,414,161
1,179,434
(a)
Includes the results of operations of Sator Beheer B.V. from its acquisition effective May 1, 2013 and 19 other
businesses from their respective acquisition dates in 2013. Our 2013 results include a loss on debt extinguishment of
$2.8 million related to our execution of a new senior secured credit facility on May 3, 2013. Also in 2013, we
recorded a net $2.5 million loss on adjustments to contingent consideration liabilities, which is included in Other
expense, net.
(b)
Includes the results of operations of 30 businesses from their respective acquisition dates in 2012. Our 2012 results
include gains totaling $17.9 million, which are included in Cost of goods sold, resulting from lawsuit settlements with
28
(c)
(d)
(e)
certain of our aftermarket product suppliers. Also in 2012, we recorded a net $1.6 million loss on adjustments to
contingent consideration liabilities, which is included in Other income, net.
Includes the results of operations of Euro Car Parts Holdings Limited from its acquisition effective October 1, 2011
and 20 other businesses from their respective acquisition dates in 2011. Our 2011 results include a loss on debt
extinguishment of $5.3 million related to our execution of a new senior secured credit facility on March 25, 2011. Also
in 2011, we recorded a net $1.4 million gain on adjustments to contingent consideration liabilities. The loss on debt
extinguishment and adjustment to contingent consideration liabilities are included in Other expense, net.
Includes the results of operations of 20 businesses from their respective acquisition dates in 2010.
Includes the results of operations of Greenleaf Auto Recyclers, LLC ("Greenleaf") from its acquisition on October 1,
2009 and seven other businesses from their respective acquisition dates in 2009. We recorded a gain on bargain
purchase for the Greenleaf acquisition totaling $4.3 million, which is included in Other income, net.
(f)
Includes cash paid for acquisitions, net of cash acquired.
29
ITEM 7.
Overview
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We provide replacement parts, components and systems needed to repair cars and trucks. Buyers of vehicle
replacement products have the option to purchase from primarily five sources: new products produced by original equipment
manufacturers ("OEMs"), which are commonly known as OEM products; new products produced by companies other than the
OEMs, which are sometimes referred to as aftermarket products; recycled products obtained from salvage vehicles; used
products that have been refurbished; and used products that have been remanufactured.
We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and
mechanical products, recycled collision and mechanical products, refurbished collision products such as wheels, bumper covers
and lights, and remanufactured engines. Collectively, we refer to these products as alternative parts because they are not new
OEM products. We are the nation’s largest provider of alternative vehicle collision replacement products and a leading provider
of alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most
major markets in the United States. Our wholesale operations also reach most major markets in Canada. We are a leading
provider of alternative vehicle replacement products in the United Kingdom, and in the second quarter of 2013, we expanded
our operations into continental Europe through the acquisition of Sator, a leading distributor of automotive aftermarket products
in the Benelux region. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell
recycled automotive products. We have organized our businesses into three operating segments: Wholesale - North America;
Wholesale - Europe; and Self Service. We aggregate our North American operating segments (Wholesale - North America and
Self Service) into one reportable segment, resulting in two reportable segments: North America and Europe.
Our revenue, cost of goods sold, and operating results have fluctuated on a quarterly and annual basis in the past and
can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control.
Factors that may affect our operating results include, but are not limited to, those listed in the Special Note on Forward-
Looking Statements in Part I, Item 1 of this Annual Report on Form 10-K. Accordingly, our historical results of operations may
not be indicative of future performance.
Acquisitions and Investments
Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. We
have pursued acquisitions that we believe will help drive profitability, cash flow and stockholder value. Our principal focus for
acquisitions is companies that are market leaders, will expand our geographic presence and enhance our ability to provide a
wide array of automotive products to our customers through our distribution network.
On May 1, 2013, we acquired Sator, a vehicle mechanical aftermarket parts distribution company based in the
Netherlands, with operations in the Netherlands, Belgium and Northern France. With the acquisition of Sator, we expanded our
geographic presence in the European vehicle mechanical aftermarket products market into continental Europe to complement
our existing U.K. operations.
Sator currently employs a three step distribution model by selling products to various distributors that service the end
customer. As a result, the line item results vary from our U.K. business, which operates a two step distribution model. While
Sator generates a lower gross margin rate than ECP, Sator should be able to gain more leverage in operating expenses as it does
not require the same infrastructure in facilities, distribution and selling to service its customers.
In addition to our acquisition of Sator, we made 19 acquisitions during 2013, including 10 wholesale businesses in
North America, 7 wholesale businesses in Europe and 2 self service operations. Our European acquisitions included five
automotive paint distribution businesses in the U.K., which enabled us to expand our collision product offerings. The other
acquisitions completed during 2013 enabled us to expand into new product lines and enter new markets.
In August 2013, we entered into an agreement with Suncorp Group, a leading general insurance group in Australia and
New Zealand, to develop an alternative vehicle replacement parts business in those countries. Under the terms of the
agreement, we will contribute our experience to help establish automotive parts recycling operations and to facilitate the
procurement of aftermarket parts, while Suncorp will supply salvage vehicles to the venture as well as assist in establishing
relationships with repair shops as customers. Our investment will expand our geographic presence into Australia and New
Zealand and will provide the opportunity to establish a leadership position in the supply of alternative parts in those countries.
On January 3, 2014, we completed our acquisition of Keystone Automotive Holdings, Inc. (“Keystone Specialty”).
Keystone Specialty is a leading distributor and marketer of specialty aftermarket equipment and accessories in North America
serving the following six product segments: truck and off-road; speed and performance; recreational vehicle; towing; wheels,
30
tires and performance handling; and miscellaneous accessories. Our acquisition of Keystone Specialty allows us to enter into
new product lines and increase the size of our addressable market. In addition, we believe that the acquisition creates potential
logistics and administrative cost synergies and cross-selling opportunities.
Also in January 2014, we completed the acquisition of a U.S. based distributor of automotive cores as well as new and
remanufactured mechanical automotive replacement parts. We believe this acquisition will expand our core and
remanufactured product mix, and will allow us to expand our product offering to include certain parts also purchased by OEMs.
In February 2014, we acquired a wholesale salvage operation and a self service operation in North America, which we believe
will expand our market share in the respective markets.
During the year ended December 31, 2012, we made 30 acquisitions in North America, including 22 wholesale
businesses and 8 self service retail operations. These acquisitions enabled us to expand our geographic presence and to enter
new markets. Additionally, two of our acquisitions were completed with a goal of improving the recovery from scrap and other
metals harvested from the vehicles we purchase: a precious metals refining and reclamation business and a scrap metal
shredder.
In October 2011, we expanded our operations into the European automotive aftermarket business through our
acquisition of ECP. ECP's product offerings are primarily focused on automotive aftermarket mechanical products, many of
which are sourced from the same suppliers that provide products to the OEMs. The expansion of our geographic presence
beyond North America into the European market offers an opportunity to us as that market has historically had a low
penetration of alternative collision parts. In addition to our ECP acquisition, we completed 20 acquisitions in North America in
2011 (17 wholesale businesses and 3 self service retail operations), which allowed us to increase our product offerings, to
expand our geographic presence and to enter new markets.
Sources of Revenue
We report our revenue in two categories: (i) parts and services and (ii) other. Our parts and services revenue is
generated from the sale of vehicle replacement products and related services including (i) aftermarket, other new and
refurbished products and (ii) recycled, remanufactured and related products and services. During the year ended December 31,
2013, sales of vehicle replacement products and services represented approximately 87% of our consolidated sales.
We sell the majority of our vehicle replacement products to collision and mechanical repair shops. Our vehicle
replacement products include sheet metal crash parts such as doors, hoods, and fenders; bumper covers; engines; head and tail
lamps; and wheels. The demand for our products and services is influenced by several factors, including the number of vehicles
in operation, the number of miles being driven, the frequency and severity of vehicle accidents, the age profile of vehicles in
accidents, the availability and pricing of new OEM parts, seasonal weather patterns and local weather conditions. Additionally,
automobile insurers exert significant influence over collision repair shops as to how an insured vehicle is repaired and the cost
level of the products used in the repair process. Accordingly, we consider automobile insurers to be key demand drivers of our
products. While they are not our direct customers, we do provide insurance carriers services in an effort to promote the
increased usage of alternative replacement products in the repair process. Such services include the review of vehicle repair
order estimates, direct quotation services to insurance company adjusters and an aftermarket parts quality and service assurance
program. We neither charge a fee to the insurance carriers for these services nor adjust our pricing of products for our
customers when we perform these services for insurance carriers.
There is no standard price for many of our products, but rather a pricing structure that varies from day to day based
upon such factors as product availability, quality, demand, new OEM product prices, the age and mileage of the vehicle from
which the part was obtained, competitor pricing and our product cost.
In 2013, revenue from other sources represented approximately 13% of our consolidated sales. These other sources
include scrap sales and sales of aluminum ingots and sows. We derive scrap metal from several sources, including vehicles that
have been used in both our wholesale and self service recycling operations and from OEMs and other entities that contract with
us for secure disposal of "crush only" vehicles. Other revenue will vary from period to period based on fluctuations in
commodity prices and the volume of materials sold.
Cost of Goods Sold
Our cost of goods sold for aftermarket products includes the price we pay for the parts, freight, and overhead costs
related to the purchasing, warehousing and distribution of our inventory, including labor, facility and equipment costs and
depreciation. Our aftermarket products are acquired from a number of vendors. Our cost of goods sold for refurbished products
includes the price we pay for cores, freight, and costs to refurbish the parts, including direct and indirect labor, facility and
equipment costs, depreciation and other overhead related to our refurbishing operations.
31
Our cost of goods sold for recycled products includes the price we pay for the salvage vehicle and, where applicable,
auction, towing and storage fees. Prices for salvage vehicles may be impacted by a variety of factors, including the number of
buyers competing to purchase the vehicles, the demand and pricing trends for used vehicles, the number of vehicles designated
as “total losses” by insurance companies, the production level of new vehicles (which provides the source from which salvage
vehicles ultimately come), and the status of laws regulating bidders or exporters of salvage vehicles. Due to changes relating to
these factors, we have seen the prices we pay for salvage vehicles fluctuate over time. Our cost of goods sold also includes
labor and other costs we incur to acquire and dismantle such vehicles. Our labor and labor-related costs related to acquisition
and dismantling account for between 8% and 10% of our cost of goods sold for vehicles we dismantle. The acquisition and
dismantling of salvage vehicles is a manual process and, as a result, energy costs are not material. Our cost of goods sold for
remanufactured products includes the price we pay for cores; freight; and costs to remanufacture the products, including direct
and indirect labor, facility and equipment costs, depreciation and other overhead related to our remanufacturing operations.
Some of our salvage mechanical products are sold with a standard six-month warranty against defects. Additionally,
some of our remanufactured engines are sold with a standard three-year warranty against defects. We also provide a limited
lifetime warranty for certain of our aftermarket products that is supported by certain of the suppliers of those products. We
record the estimated warranty costs at the time of sale using historical warranty claims information to project future warranty
claims activity and related expenses.
Other revenue is primarily generated from the hulks and unusable parts of the vehicles we acquire for our wholesale
and self service recycled product operations, and therefore, the costs of these sales include the proportionate share of the price
we pay for the salvage vehicles as well as the applicable auction, storage and towing fees and internal costs to purchase and
dismantle the vehicles. Our cost of goods sold for other revenue will fluctuate based on the prices paid for salvage vehicles,
which may be impacted by a variety of factors as discussed above.
Expenses
Our facility and warehouse expenses primarily include our costs to operate our aftermarket warehouses, salvage yards
and self service retail facilities. These costs include personnel expenses such as wages, incentive compensation and employee
benefits for plant management and facility and warehouse personnel, as well as rent for our facilities and related utilities,
property taxes, repairs and maintenance. The costs included in facility and warehouse expenses do not relate to inventory
processing or conversion activities and, as such, are classified below the gross margin line on our Consolidated Statements of
Income.
Our distribution expenses primarily include our costs to prepare and deliver our products to our customers. Included in
our distribution expense category are personnel costs such as wages, employee benefits and incentive compensation for drivers;
third party freight costs; fuel; and expenses related to our delivery and transfer trucks, including vehicle leases, repairs and
maintenance and insurance.
Our selling and marketing expenses primarily include salary, commission and other incentive compensation expenses
for sales personnel; advertising, promotion and marketing costs; credit card fees; telephone and other communication expenses;
and bad debt expense. Personnel costs account for approximately 80% of our selling and marketing expenses. Most of our sales
personnel are paid on a commission basis. The number and quality of our sales force is critical to our ability to respond to our
customers’ needs and increase our sales volume. Our objective is to continually evaluate our sales force, develop and
implement training programs, and utilize appropriate measurements to assess our selling effectiveness.
Our general and administrative expenses primarily include the costs of our corporate offices and field support center,
which provide management, treasury, accounting, legal, payroll, business development, human resources and information
systems functions. General and administrative expenses include wages and benefits for corporate, regional and administrative
personnel; stock-based compensation and other incentive compensation; information systems support and maintenance
expenses; and accounting, legal and other professional fees.
Seasonality
Our operating results are subject to quarterly variations based on a variety of factors, influenced primarily by seasonal
changes in weather patterns. During the winter months, we tend to have higher demand for our products because there are more
weather related accidents, which generate repairs.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make estimates, assumptions, and judgments that affect the
32
reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, assumptions, and judgments, including those related to revenue recognition,
inventory valuation, business combinations, and goodwill impairment. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis
for our judgments about the carrying values of assets and liabilities and our recognition of revenue. Actual results may differ
from these estimates.
Revenue Recognition
We recognize and report revenue from the sale of vehicle replacement products when they are shipped or picked up by
the customers and title has transferred, subject to an allowance for estimated returns, discounts and allowances that
management estimates based upon historical information. A product would ordinarily be returned within a few days of
shipment. Our customers may earn discounts based upon sales volumes or sales volumes coupled with prompt payment.
Allowances are normally given within a few days following product shipment. We analyze historical returns and allowances
activity by comparing the items to the original invoice amounts and dates. We use this information to project future returns and
allowances on products sold. If actual returns and allowances are higher than our historical experience, there would be an
adverse impact on our operating results in the period of occurrence.
We recognize revenue from the sale of scrap, cores, and other metals when title has transferred, which typically occurs
upon delivery to the customer.
Inventory Accounting
Aftermarket and Refurbished Product Inventory. Our aftermarket inventory cost is established based on the average
price we pay for parts, and includes expenses incurred for freight and overhead costs. For items purchased from foreign
companies, import fees and duties and transportation insurance are also included. Refurbished inventory cost is based on the
average price we pay for cores, and also includes expenses incurred for freight, labor and other overhead related to our
refurbishing operations.
Salvage and Remanufactured Inventory. Our salvage inventory cost is established based upon the price we pay for a
vehicle, including auction, towing and storage fees, as well as expenditures for buying and dismantling vehicles. Inventory
carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to
the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's
days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability
for salvage vehicles. Remanufactured inventory cost is based upon the price paid for cores, and also includes expenses
incurred for freight, direct manufacturing costs and overhead related to our remanufacturing operations.
For all inventory, carrying value is recorded at the lower of cost or market and is reduced to reflect current anticipated
demand. If actual demand differs from our estimates, additional reductions to inventory carrying value would be necessary in
the period such determination is made.
Business Combinations
We record our acquisitions under the purchase method of accounting, under which the acquisition purchase price is
allocated to the assets acquired and liabilities assumed based upon their respective fair values. We utilize management
estimates and, in some instances, independent third-party valuation firms to assist in determining the fair values of assets
acquired, liabilities assumed and contingent consideration granted. Such estimates and valuations require us to make significant
assumptions, including projections of future events and operating performance. The purchase price allocation is subject to
change during the measurement period, which is limited to one year subsequent to the acquisition date.
For certain acquisitions, we may issue contingent consideration under which additional payments will be made to the
former owners if specified future events occur or conditions are met, such as meeting profitability or earnings targets. Each
contingent consideration obligation is measured at the acquisition date fair value of the consideration, which is determined
using the discounted probability-weighted expected cash flows. At each subsequent reporting period, we remeasure the liability
at fair value and record any changes to the fair value through Change in Fair Value of Contingent Consideration Liabilities
within Other Expense (Income) on our Consolidated Statements of Income. The fair value measurement of the liability is
performed by our corporate accounting department using current information about key assumptions, with the input and
oversight of our operational and executive management teams. Each reporting period, we evaluate the performance of the
business compared to our previous expectations, along with any changes to our future projections, and update the estimated
cash flows accordingly. In addition, we consider changes to our cost of capital and changes to the probability of achieving the
earnout payment targets when updating our discount rate on a quarterly basis.
33
Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount
periods and rates, variances between actual results achieved and projected results, changes in the projected results of the
acquired business, or changes in our assessment of the probabilities surrounding the achievement of targets detailed in the
respective agreements. As of December 31, 2013, we recorded $55.7 million of contingent consideration liabilities. Of this
amount, $49.7 million represents the maximum payment for the 2013 performance period related to our 2011 acquisition of
ECP, which we expect to pay in the first quarter of 2014.
Goodwill Impairment
We are required to test our goodwill for impairment at least annually. When testing goodwill for impairment, we are
required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the
events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the
assets exceed the carrying value. If these assumptions or estimates change in the future, we may be required to record
impairment charges for these assets. In response to changes in industry and market conditions, we may be required to
strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result
in an impairment of goodwill.
We are organized into three operating segments: Wholesale—North America; Wholesale—Europe; and Self Service.
We have also concluded that these three operating segments are reporting units for purposes of goodwill impairment testing in
2013. We perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate
that an impairment may exist. During 2013, we did not identify any events or changes in circumstances that would more likely
than not reduce the fair value of our reporting units below their carrying amounts. Therefore, we did not perform any
impairment tests other than our annual test in the fourth quarter of 2013.
Our goodwill would be considered impaired if the net book value of a reporting unit exceeded its estimated fair value.
The fair value estimates are established using weightings of the results of a discounted cash flow methodology and a
comparative market multiples approach. We believe that using two methods to determine fair value limits the chances of an
unrepresentative valuation. As of December 31, 2013, we had a total of $1.9 billion in goodwill subject to future impairment
tests. If we were required to recognize goodwill impairments, we would report those impairment losses as part of our operating
results. We determined that no adjustments were necessary when we performed our annual impairment testing in the fourth
quarter of 2013. A 25% decrease in the fair value estimates of the reporting units in the annual impairment test would not have
changed this determination, and each of the reporting units had a substantial excess of fair value over carrying value.
Recently Issued Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 2, "Summary of Significant Accounting Policies" to the
consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to new
accounting standards.
Financial Information by Geographic Area
See Note 13, "Segment and Geographic Information" to the consolidated financial statements in Part II, Item 8 of this
Annual Report on Form 10-K for information related to our revenue and long-lived assets by geographic region.
34
Results of Operations—Consolidated
The following table sets forth statement of operations data as a percentage of total revenue for the periods indicated:
Statements of Income Data:
Revenue
Cost of goods sold
Gross margin
Facility and warehouse expenses
Distribution expenses
Selling, general and administrative expenses
Restructuring and acquisition related expenses
Depreciation and amortization
Operating income
Other expense, net
Income before provision for income taxes
Provision for income taxes
Net income
Year Ended December 31,
2013
2012
2011
100.0%
100.0%
100.0%
59.0%
41.0%
8.4%
8.5%
11.8%
0.2%
1.6%
10.5%
1.1%
9.4%
3.2%
6.2%
58.2%
41.8%
8.4%
9.1%
12.0%
0.1%
1.6%
10.6%
0.7%
9.9%
3.6%
6.3%
57.4%
42.6%
9.0%
8.8%
12.0%
0.2%
1.5%
11.1%
0.8%
10.3%
3.8%
6.4%
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Revenue. Our revenue increased 22.8% to $5.1 billion for the year ended December 31, 2013 from $4.1 billion in
2012. The increase in revenue was due to 13.8% acquisition related revenue growth and 9.3% organic growth (reflecting 11.0%
growth in parts and services revenue partially offset by a 1.5% decline in other revenue), partially offset by a 0.4% unfavorable
impact from foreign currency exchange primarily in our European operations. Refer to the discussion of our segment results of
operations for factors contributing to revenue growth during 2013 compared to the prior year.
Cost of Goods Sold. Our cost of goods sold increased to 59.0% of revenue in 2013 from 58.2% of revenue in 2012. In
2013, our cost of goods sold reflects a 0.7% increase as a percentage of revenue as a result of the lower gross margins
generated by certain of our acquisitions, including our 2013 acquisitions of Sator and five U.K.-based paint distribution
businesses, as well as our June 2012 acquisition of a precious metals refining and reclamation business. In the prior year
period, we recognized a gain on lawsuit settlements totaling $17.9 million that did not reoccur in 2013, thus accounting for
0.4% of the increase in the current year cost of goods sold as a percentage of revenue. See Note 7, "Commitments and
Contingencies" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further
information on the lawsuit settlements. These increases in cost of goods sold as a percentage of revenue were partially offset
by 0.4% improvement in gross margin in our salvage operations within our Wholesale - North America segment, which reflects
the impact of various individually insignificant factors, the largest of which were lower vehicle costs and pricing
improvements.
Facility and Warehouse Expenses. As a percentage of revenue, facility and warehouse expenses for the year ended
December 31, 2013 remained flat at 8.4% of revenue. Our North American operations increased facility and warehouse
expense by 0.2% of revenue, which reflects increased weighting of our self service business. During 2012, we completed the
acquisition of eight self service retail operations, which generally incur greater facility costs as a percentage of revenue
compared to our wholesale operations, as our self service business tends to require a larger facility footprint to generate its
sales. Higher costs in North America were offset by a greater proportion of revenue generated by our European operations,
which incur lower facility warehouse costs as a percentage of revenue, combined with improved leveraging of facility and
warehouse personnel in our U.K. operations related to 56 new branch openings completed since the beginning of 2012.
Distribution Expenses. As a percentage of revenue, distribution expenses decreased to 8.5% of revenue in 2013 from
9.1% of revenue in 2012. In our North American operations, improved leveraging of our distribution workforce contributed
0.2% of the reduction in distribution expenses as a percentage of revenue. Fuel expense also decreased by 0.1% of revenue due
to a reduction in the average price we pay for fuel. Our European operations contributed the remainder of the decrease,
including a 0.2% benefit from our 2013 European acquisitions, as well as a 0.1% benefit from our existing U.K. operations,
primarily as a result of improved leverage related to 56 new branch openings since the beginning of 2012.
35
Selling, General and Administrative Expenses. Our selling, general and administrative expenses for the year ended
December 31, 2013 decreased to 11.8% of revenue from 12.0% during the prior year. The reduction of these expenses as a
percentage of revenue reflects an approximately equal impact from improved leveraging of general and administrative
overhead costs and the relatively lower general and administrative expenses incurred by our Sator business compared to our
other operations.
Restructuring and Acquisition Related Expenses. During 2013 and 2012, we incurred $10.2 million and $2.8 million
of restructuring and acquisition related expenses, respectively. During the year ended December 31, 2013, we incurred $6.7
million of acquisition related expenses, which include external costs primarily related to our acquisitions of Sator, five
automotive paint distribution businesses in the U.K., and our January 2014 acquisition of Keystone Specialty. During 2013, we
also incurred $3.5 million related to the integration of acquired businesses into our existing operations, primarily in our
European segment. Our 2012 restructuring and acquisition related expenses included $1.1 million related to the consolidation
of our bumper and wheel refurbishing operations, $1.2 million related to the integration of certain of our acquisitions into our
existing business, and $0.5 million of acquisition related expenses. See Note 9, "Restructuring and Acquisition Related
Expenses" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further
information on our restructuring and integration plans.
Depreciation and Amortization. As a percentage of revenue, depreciation and amortization expense was 1.6% during
each of the years ended December 31, 2013 and 2012. Higher expense in 2013 resulting from our increased levels of property
and equipment and higher levels of intangible assets as a result of business acquisitions was offset by revenue growth.
Other Expense, Net. Total other expense, net increased to $54.4 million for the year ended December 31, 2013 from
$28.8 million for the prior year. This increase was primarily due to an increase in interest expense of $19.8 million compared to
the prior year, which reflects an approximately equal impact of higher outstanding debt balances and higher interest rates,
primarily as a result of the senior notes issued in May. In May 2013, we executed an amended and restated senior secured
credit agreement, and as a result, we expensed a portion of capitalized debt issuance costs related to the prior agreement, as
well as a portion of the fees incurred with the amendment. The resulting loss on debt extinguishment in 2013 totaled $2.8
million. The impact of foreign currency fluctuations in the Canadian dollar, the British pound, and other currencies was a loss
of $2.4 million during 2013 compared to a gain of $0.2 million during 2012. In 2013, we recognized expense of $2.5 million as
a result of fair value adjustments to our contingent payment liabilities, compared to $1.6 million in 2012.
Provision for Income Taxes. Our effective income tax rate was 34.5% and 36.2% for the years ended December 31,
2013 and 2012, respectively. We continued to expand our international operations throughout 2012 and 2013 with both
acquisition related and organic revenue growth in our European segment as well as through acquisitions in Canada. The lower
effective income tax rate in 2013 reflects a 1.4% benefit relative to the prior year as a result of this growth in our international
operations, where a larger proportion of our pretax income was generated in lower rate jurisdictions. The effect of lower state
income taxes, other discrete items and permanent differences contributed the remaining 0.3% reduction in the effective tax rate
compared to the prior year.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Revenue. Our revenue increased 26.1% to $4.1 billion for the year ended December 31, 2012 from $3.3 billion in
2011. The increase in revenue was due to 21.9% acquisition related revenue growth and 4.1% organic growth, which was
composed of 6.0% parts and services revenue partially offset by a 5.8% decline in other revenue due to declining scrap steel
and other metals prices. Acquisition related revenue growth for the year ended December 31, 2012 totaled $716.8 million,
which included $481.6 million from our fourth quarter 2011 acquisition of ECP. Our organic revenue growth in aftermarket,
other new and refurbished products of 6.2% was primarily a result of higher volumes. Incremental sales volume from ECP's
new branches, which we include in organic revenue, contributed 4.4% of the growth. The remaining volume increase was
primarily attributable to greater customer penetration resulting from our expansion into complementary product lines such as
paint and related products. Our organic revenue from the sale of recycled and remanufactured products grew 5.8% primarily as
a result of higher sales volumes, which resulted from higher inventory purchases that contributed to a greater volume of parts
available for sale. Organic revenue growth in parts and services was negatively affected by milder winter weather conditions in
North America in the first quarter and into the beginning of the second quarter of 2012 as the milder winter weather contributed
to fewer and less severe vehicle accidents, resulting in lower insurance claims activity.
Cost of Goods Sold. Our cost of goods sold increased to 58.2% of revenue in 2012 from 57.4% of revenue in 2011. In
2012, the prices we received for scrap metal declined relative to the cost of the scrap component of the cars that we crushed,
while in the prior year scrap metal prices increased relative to the cost component. The resulting margin compression in our
Self Service and Wholesale - North America segments contributed 0.6% of the increase in cost of goods sold. Our acquisition
of ECP, which generates lower gross margins than our North American business because of a greater weighting on lower
margin mechanical products, increased our cost of goods sold by 0.3% of revenue. Our cost of goods sold for the year ended
36
December 31, 2012 also reflects a 0.2% increase as a result of the lower gross margins generated by our precious metals
refining and reclamation business that we acquired in the second quarter of 2012. Higher warranty claims experience in 2012,
primarily related to our remanufactured engines, increased cost of goods sold by 0.2% of revenue. Our cost of goods sold for
2012 also reflects lower levels of revenue from high margin, "crush only" vehicles compared to the prior year, which increased
cost of goods sold by 0.2%. These increases in our cost of goods sold were partially offset by a 0.2% reduction in cost of goods
sold for lower vehicle acquisition costs, primarily in our Wholesale - North America segment. Additionally, we recognized a
gain on lawsuit settlements totaling $17.9 million, which reduced cost of goods sold by 0.4% of revenue. See Note 7,
"Commitments and Contingencies" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-
K for further information on the lawsuit settlements.
Facility and Warehouse Expenses. As a percentage of revenue, facility and warehouse expenses for the year ended
December 31, 2012 decreased to 8.4% of revenue compared to 9.0% in 2011, which was primarily due to lower facility and
warehouse expense in our ECP operations as compared to our North American operations. The branch locations in the U.K. are
typically smaller and less costly than the warehouse locations in North America since the majority of the inventory is stored in
the national distribution center in the U.K., which supplies the branch locations daily. In our North American operations, most
of the inventory sold by our locations is stored on site rather than in regional or national distribution centers. The cost of the
national distribution center in the U.K. is capitalized into inventory and expensed through cost of goods sold.
Distribution Expenses. As a percentage of revenue, distribution expenses increased to 9.1% of revenue in 2012 from
8.8% of revenue in 2011, primarily resulting from an increase of 0.2% related to our European operations. Our ECP
operations, which generate a greater proportion of revenue from sales to mechanical repair shops compared to our North
American operations, incur relatively higher delivery expenses as garage customers demand faster delivery times than our
North American collision repair customers. In our North American operations, distribution expenses increased by 0.2% of
revenue due to higher compensation costs as a percentage of revenue compared to the prior year.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses for the year ended
December 31, 2012 were consistent with the prior year at 12.0% of revenue. Our ECP operations increased selling, general and
administrative expenses by 0.2% of revenue, primarily due to greater personnel expenditures for the relatively larger sales force
compared to our North American operations. The impact of higher selling expenses in our European operations was offset by a
reduction in general and administrative personnel expenditures, including incentive compensation, as a percentage of revenue
in our North American operations.
Restructuring and Acquisition Related Expenses. During 2012 and 2011, we incurred $2.8 million and $7.6 million of
restructuring and acquisition related expenses, respectively. In 2012, we incurred $1.1 million to execute our restructuring plan
to consolidate our bumper and wheel refurbishing product lines. We also incurred $1.2 million of restructuring expenses
related to the integration of certain of our 2011 and 2012 acquisitions into our existing business. Our 2011 expenses included
$4.0 million related to integration of our 2011 acquisition of the Akzo Nobel paint business and our 2010 acquisition of Cross
Canada, a Canadian aftermarket business. We also incurred $0.4 million of integration costs related to certain of our other
acquisitions. Acquisition related expenses, which consist of external costs such as closing costs and professional fees, totaled
$0.5 million and $3.2 million for the years ended December 31, 2012 and 2011, respectively. Our acquisition related expenses
in 2011 primarily related to our acquisition of ECP on October 1, 2011. See Note 9, "Restructuring and Acquisition Related
Expenses" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further
information on our restructuring and integration plans.
Depreciation and Amortization. As a percentage of revenue, depreciation and amortization expense was 1.6% in 2012
compared to 1.5% in 2011. Higher expense in 2012 resulting from our increased levels of property and equipment and higher
levels of intangible assets as a result of business acquisitions was mostly offset by continued leveraging of our existing
facilities to support organic revenue growth.
Other Expense, Net. Total other expense, net increased to $28.8 million for the year ended December 31, 2012 from
$25.7 million for the prior year. This increase was primarily due to an increase in interest expense of $7.1 million compared to
the prior year, partially offset by a $5.3 million loss on debt extinguishment recognized in 2011 related to the write off of debt
issuance costs in conjunction with the execution of our senior secured credit agreement. The increase in interest expense in
2012 was due to higher average outstanding bank borrowings of $922 million compared to $671 million in 2011, primarily as a
result of additional borrowings to finance our acquisition of ECP in the fourth quarter of 2011. The effect of higher average
debt levels was partially offset by a reduction in our average effective interest rate on bank borrowings to 3.1% in 2012 from
3.4% in 2011, resulting from lower interest rates under our credit agreement. In 2012, we recognized $1.6 million of expense
as a result of fair value adjustments to our contingent payment liabilities, while we recognized a $1.4 million gain in 2011.
Adjustments to our contingent consideration liabilities may cause variability in our results of operations, as changes in the
assumptions used to measure the fair value of the liabilities may result in net gains or losses from period to period. We
increased our collections of fees for late payments in 2012, which increased other income by $1.6 million over the prior year.
37
In 2012, the impact of foreign currency fluctuations in the Canadian dollar, the British pound and other currencies was a gain of
$0.2 million compared to a loss of $0.4 million in 2011.
Provision for Income Taxes. Our effective income tax rate was 36.2% and 37.4% for the years ended December 31,
2012 and 2011, respectively. The lower effective income tax rate in 2012 reflects a benefit of 1.5% relative to the prior year
from our expanding international operations as a larger proportion of our pretax income was generated in lower rate
jurisdictions. Other rate effects from discrete items and permanent differences were 0.3% higher in 2012 than the prior year.
Results of Operations—Segment Reporting
We have three operating segments: Wholesale—North America; Wholesale—Europe; and Self Service. Our
operations in North America, which include our Wholesale—North America and Self Service operating segments, are
aggregated into one reportable segment because they possess similar economic characteristics and have common products and
services, customers, and methods of distribution. Our Wholesale—Europe operating segment is presented as a separate
reportable segment.
The following table presents our financial performance, including revenue and earnings before interest, taxes, and
depreciation and amortization (“EBITDA”) by reportable segment for the periods indicated (in thousands):
Year Ended December 31,
2013
% of
Revenue
2012
% of
Revenue
2011
% of
Revenue
$
$
$
$
3,802,929
1,259,599
5,062,528
484,824 12.7%
131,086 10.4%
615,910 12.2%
$
$
$
$
3,426,858
696,072
4,122,930
440,448 12.9%
70,099 10.1%
510,547 12.4%
$
$
$
$
3,131,376
138,486
3,269,862
405,924 13.0%
12,144 8.8%
418,068 12.8%
Revenue
North America
Europe
Total revenue
EBITDA
North America
Europe
Total EBITDA
The key measure of segment profit or loss reviewed by our chief operating decision maker is EBITDA. Segment
EBITDA includes revenue and expenses that are controllable by the segment. Corporate and administrative expenses are
allocated to the segments based on usage, with shared expenses apportioned based on the segment’s percentage of consolidated
revenue. Segment EBITDA excludes depreciation, amortization, interest (including loss on debt extinguishment) and taxes.
Loss on debt extinguishment is considered a component of interest in calculating EBITDA, as the write-off of debt issuance
costs is similar to the treatment of debt issuance cost amortization. See Note 13, "Segment and Geographic Information" to the
consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of total EBITDA to
Net Income.
Since we presented a single reportable segment (North America) until the acquisition of ECP effective October 1,
2011, our European segment did not have a full comparative prior year period for the year ended December 31, 2012. For
information on the factors that contributed to the results of our North American operations during 2013 compared to 2012,
including the effect of our European operations on our consolidated year over year results, refer to our consolidated results of
operations discussion above.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
North America
Revenue. Revenue in our North American segment increased 11.0% to $3.8 billion during the year ended December
31, 2013 from $3.4 billion during the prior year. The increase in revenue reflects 6.4% acquisition related revenue growth and
4.8% organic growth (which included 6.0% organic growth in parts and services revenue offset by 1.6% decrease in other
revenue), partially offset by 0.2% unfavorable impact from foreign exchange rates, primarily in our Canadian operations. Our
organic growth in parts and services revenue was primarily due to higher sales volumes. In the first half of the prior year, we
experienced milder winter weather conditions, which contributed to fewer and less severe vehicle accidents, resulting in lower
insurance claims. Additionally, current year sales volumes benefited from higher inventory purchases compared to the prior
year, which contributed to a greater volume of parts available for sale. The decrease in other revenue was primarily a result of
38
a reduction in sales volume from our furnace operations, partially offset by an increased volume of scrap and core revenue from
our salvage operations.
EBITDA. As a percentage of revenue, EBITDA in our North American segment decreased to 12.7% during the year
ended December 31, 2013 from 12.9% in the prior year. In the prior year, we recognized a gain on lawsuit settlements totaling
$17.9 million, which decreased EBITDA as a percentage of revenue by 0.5% relative to the prior year as it did not reoccur in
2013. Our precious metals refining and reclamation business, which generates lower margins as a percentage of revenue,
contributed 0.2% of the decline of EBITDA, primarily due to including a full year of results in 2013 compared to only seven
months in 2012. In our self service operations, a narrowing spread between the prices received for scrap and other metals and
the cost of the scrap component of the cars that we crushed resulted in a decrease in EBITDA of 0.2% of revenue. These
decreases were partly offset by a 0.5% improvement in EBITDA margin from our wholesale salvage operations, which
reflects the impact of various individually insignificant factors, the largest of which were lower vehicle costs and pricing
improvements. Lower operating expenses increased EBITDA by 0.2% of revenue as a result of improved leverage of our
distribution workforce and lower fuel costs, partially offset by higher facility costs in our self service operations.
Europe
Revenue. Revenue in our European segment increased to $1.3 billion during the year ended December 31, 2013, an
81.0% increase over $696.1 million of revenue generated in the prior year. The increase in revenue includes 50.4%
acquisition related revenue growth, primarily as a result of our Sator acquisition in May 2013, and 31.8% organic revenue
growth. Our organic revenue growth was a result of higher sales volumes, including a 20.8% increase from stores open more
than 12 months and an 11% increase from revenue generated by 56 branch openings since the beginning of 2012 through the
one year anniversary of their respective opening dates. The increase in revenue was partially offset by the weakening, on
average, of the British pound against the U.S. dollar, which decreased revenue by 1.3% compared to the prior year.
EBITDA. As a percentage of revenue, EBITDA in our European segment increased to 10.4% for the year ended
December 31, 2013 from 10.1% during 2012. In our U.K. operations, improved leverage of our facilities and distribution
network to support new branch openings and existing store sales growth resulted in a 1.1% improvement in EBITDA as a
percentage of revenue compared to the prior year. The improvement in EBITDA margin in our U.K. operations was partially
offset by the impact of our Sator acquisition, which decreased EBITDA by 0.4% as a percentage of revenue. We believe that
Sator's negative effect on our EBITDA margin will diminish over time as we integrate Sator into our European operations,
which we believe will result in cost savings, primarily in purchasing synergies. Restructuring and acquisition related expenses
decreased EBITDA by 0.6% of revenue, primarily from our Sator acquisition as well as the integration of certain of our other
European acquisitions. During 2013, we incurred lower expenses related to the remeasurement of contingent payment
liabilities, which increased EBITDA by 0.3% of revenue compared to the prior year.
2014 Outlook
We estimate that net income and diluted earnings per share for the year ending December 31, 2014, excluding the
impact of any restructuring and acquisition related expenses and any gains or losses related to acquisitions or divestitures
(including changes in the fair value of contingent consideration liabilities), will be in the range of $400 million to $430 million
and $1.30 to $1.40, respectively.
Liquidity and Capital Resources
The following table summarizes liquidity data as of the dates indicated (in thousands):
Cash and equivalents
Total debt
Net debt (total debt less cash and equivalents)
Current maturities
Capacity under credit facilities (a)
Availability under credit facilities (a)
December 31,
2013
December 31,
2012
$
150,488
$
59,770
1,305,781
1,155,293
41,535
1,430,000
1,150,603
1,118,478
1,058,708
71,716
1,030,000
356,143
Total liquidity (cash and equivalents plus availability
on credit facilities)
1,301,091
415,913
(a) Includes our revolving credit facility and our receivables securitization facility.
39
We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal
development and acquisitions. Our primary sources of liquidity are cash flows from operations and our credit facilities. We
utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards
funding acquisitions or paying down outstanding debt. As we have pursued acquisitions as part of our growth strategy, our
cash flows from operations have not always been sufficient to cover our investing activities. To fund our acquisitions, we have
accessed various forms of debt financing, including our May 2013 transactions to refinance our existing credit facility and to
issue $600 million of senior notes.
As of December 31, 2013, we had debt outstanding and additional available sources of financing, as follows:
• Senior secured credit facility maturing in May 2018, composed of $450 million in term loans ($439
million outstanding at December 31, 2013) and $1.35 billion in revolving credit ($234 million
outstanding at December 31, 2013), bearing interest at variable rates (although a portion of this debt is
hedged through interest rate swap contracts)
• Senior unsecured notes totaling $600 million, maturing in May 2023 and bearing interest at a 4.75%
fixed rate
• Receivables securitization facility with availability up to $80 million, maturing in September 2015 and
bearing interest at variable commercial paper rates (full capacity available as of December 31, 2013)
The Sator acquisition was the catalyst for our May 2013 financing transactions. Had we simply paid for Sator with the
unamended credit facility, the remaining availability under our credit facility would have been approximately $115 million,
which we judged to be too low for a company our size. Given that Sator is a long-term asset, we considered alternative
financing options and decided to issue long-term notes to fund this acquisition. In connection with the notes transaction, we
took the opportunity to amend our credit facility by increasing the overall size of the revolver, resetting the term loan,
extending the maturity, and adjusting certain covenants. We see a number of strategic benefits from this refinancing. By
issuing the notes, we diversified our financing structure by adding a long-term fixed rate instrument and reducing our reliance
on the bank market. We also believe the interest rate on the notes was favorable. Although higher than today's floating rate
debt, the 10-year fixed rate of 4.75% reduces our risk of future interest rate increases, which we have seen in the market
subsequent to our offering. The new structure provides financial flexibility to execute our long-term growth strategy. If we see
an attractive acquisition opportunity, we have the ability to use our revolver to move quickly and have certainty of funding.
As of December 31, 2013, we had $1.2 billion available on our credit facilities. Combined with $150 million of cash
and equivalents at December 31, 2013, we had $1.3 billion in available liquidity, an increase of $885 million over our available
liquidity as of December 31, 2012. In January 2014, we increased our credit facility borrowings by $450 million (including
$370 million borrowed under our senior secured credit facility and $80 million borrowed under the receivables securitization
facility) primarily to finance our acquisition of Keystone Specialty completed on January 3, 2014. We believe that our current
liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current
operating and capital requirements, although such sources may not be sufficient for future acquisitions depending on their size.
While we believe that we currently have adequate capacity, from time to time, we may need to raise additional funds through
public or private financing, strategic relationships or other arrangements. There can be no assurance that additional funding, or
refinancing of our credit facility, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional
equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Our failure
to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial
condition.
Borrowings under the credit agreement accrue interest at variable rates, which depend on the currency and the duration
of the borrowing, plus an applicable margin rate. We hold interest rate swaps to hedge the variable rates on our credit
agreement borrowings (as described in Note 5, "Derivative Instruments and Hedging Activities" to the consolidated financial
statements in Part II, Item 8 of this Annual Report on Form 10-K), with the effect of fixing the interest rates on the respective
notional amounts. After giving effect to these interest rate swap contracts, the weighted average interest rate on borrowings
outstanding against our credit agreement at December 31, 2013 was 3.05%. Including the borrowings on our senior notes and
receivables securitization program, our overall weighted average interest rate on borrowings was 3.85% at December 31, 2013.
Cash interest payments were $45.3 million for the year ended December 31, 2013, which included our first semiannual interest
payment of $14.2 million related to the senior notes. We had outstanding credit agreement borrowings of $672.6 million and
$974.6 million at December 31, 2013 and December 31, 2012, respectively. Of these amounts, $22.5 million and $31.9 million
were classified as current maturities at December 31, 2013 and December 31, 2012, respectively. We have scheduled
repayments of $5.6 million each quarter on the term loan through its maturity in May 2018 but no other significant principal
payments on our credit facilities prior to the maturity of the receivables securitization program in September 2015. We
currently expect that we will extend the receivables securitization facility when the original three year term expires, but there
can be no assurance that we will be able to do so on acceptable terms.
40
Our credit agreement contains customary covenants that provide limitations and conditions on our ability to enter into
certain transactions. The credit agreement also contains financial and affirmative covenants, including limitations on our net
leverage ratio and a minimum interest coverage ratio. We were in compliance with all restrictive covenants under our credit
agreement as of December 31, 2013.
The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product
purchases at the time of shipment or on standard payment terms, depending on the manufacturer and the negotiated payment
terms. Our purchases of aftermarket products totaled approximately $1.7 billion, $1.3 billion, and $836.3 million in 2013, 2012,
and 2011, respectively. Aftermarket inventory purchases in 2013 include $198.5 million related to our May 2013 acquisition of
Sator. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the
time that we take possession of the vehicles. We acquired approximately 281,000, 262,000, and 234,000 wholesale salvage
vehicles (cars and trucks) in 2013, 2012, and 2011, respectively. In addition, we acquired approximately 513,000, 416,000, and
352,000 lower cost self service and "crush only" vehicles in 2013, 2012, and 2011, respectively.
Net cash provided by operating activities totaled $428.1 million for the year ended December 31, 2013, compared to
$206.2 million in 2012. Compared to the prior year, our 2013 EBITDA increased by $105.4 million, due to both acquisition
related growth and organic growth. While we generated greater pretax income during 2013 compared to the prior year, we
reduced our cash payments for income taxes to $110.9 million in 2013 from $146.5 million during the prior year because we
overpaid taxes in 2012, which we offset against our 2013 estimated tax payments. Cash payments for incentive compensation
were lower during 2013, including $8.0 million lower bonus payments and a $5.9 million payment under our long-term
incentive plan in the prior year that did not reoccur in 2013. Cash outflows for our primary working capital accounts
(receivables, inventory and payables) totaled $64.3 million during 2013, compared to $123.0 million during 2012, primarily
due to the timing of cash payments on accounts payable. Cash flows related to our primary working capital accounts can be
volatile as the purchases, payments and collections can be timed differently from period to period and can be influenced by
factors outside of our control. However, we expect that the net change in these working capital items will generally be a cash
outflow as we grow our business each year.
Net cash used in investing activities totaled $505.6 million for the year ended December 31, 2013, compared to $352.5
million for the same period of 2012. We invested $408.4 million of cash, net of cash acquired, in business acquisitions during
2013, including our acquisition of Sator for $272.8 million, compared to $265.3 million for business acquisitions in the
comparable prior year. In the third quarter of 2013, we entered into an agreement with Suncorp Group to develop an alternative
vehicle products business in Australia and New Zealand, for which our initial investment totaled $9.1 million. Property and
equipment purchases were $90.2 million in the year ended December 31, 2013 compared to $88.3 million in the prior year.
Net cash provided by financing activities totaled $165.9 million for the year ended December 31, 2013, compared to
$157.1 million in 2012. During 2013, we amended our credit facility and issued $600 million in senior notes. In 2013, net
borrowings were $227.1 million compared to $147.0 million in 2012. In both periods, we used the proceeds from the net
borrowings primarily to fund acquisitions. In connection with our 2013 financing transactions, we paid $16.9 million in debt
issuance costs. In March 2013, we made a payment of $33.9 million ($31.5 million included in financing cash flows and $2.4
million included in operating cash flows) for the 2012 earnout period under the contingent payment agreement related to our
2011 acquisition of ECP. Cash generated from exercises of stock options provided $15.4 million and $17.7 million in the years
ended December 31, 2013 and 2012, respectively. The excess tax benefit from share-based payment arrangements reduced
income taxes payable by $18.3 million and $15.7 million in the years ended December 31, 2013 and 2012, respectively.
Net cash provided by operating activities totaled $206.2 million for the year ended December 31, 2012, compared to
$211.8 million in 2011. In 2012, our EBITDA increased by $92.5 million compared to the prior year period, due to both
acquisition related growth and organic growth. The increase in EBITDA was partially offset by a $43.7 million greater cash
outflow for accounts payable as we accelerated payments to take advantage of prompt pay discounts, resulting in a decrease in
days payable outstanding in 2012 compared to 2011. In 2012, we also made $33.0 million of higher income tax payments
compared to the prior year as a result of greater pretax earnings. Due to higher outstanding debt levels, cash payments for
interest exceeded the prior year by $7.7 million. Prepayments for insurance policies and payroll taxes increased by $7.3 million
over the prior year due to additional insurance policies and the timing of payroll tax payments for our European operations
acquired in the fourth quarter of 2011. The year ended December 31, 2012 reflected higher bonus payments of $1.8 million
compared to the prior year as well as $5.9 million of incremental payments under our long term incentive plan.
Net cash used in investing activities totaled $352.5 million for the year ended December 31, 2012, compared to $571.6
million for the same period of 2011. We invested $265.3 million of cash, net of cash acquired, in 30 acquisitions and payments
for certain of our 2011 acquisitions during 2012, compared to $486.9 million for 21 business acquisitions in the comparable
prior year period, including our acquisition of ECP for $293.7 million of cash, net of cash acquired. Property and equipment
purchases were $88.3 million in the year ended December 31, 2012 compared to $86.4 million in the prior year period.
41
Net cash provided by financing activities totaled $157.1 million for the year ended December 31, 2012, compared to
$311.4 million in 2011. In 2012, we borrowed a net $147.0 million under our credit facilities, compared to $307.0 million in the
prior year. Our 2012 bank borrowings included $200 million of available term loans under the credit agreement and $80
million under the receivables securitization facility executed in September 2012, the proceeds of which were used to fund
acquisitions and pay outstanding amounts under our revolving credit facility. Our bank borrowings in 2011 were used
primarily to finance the acquisition of ECP in October 2011. Related to the execution of the 2011 credit agreement, we paid
$11.0 million of debt issuance costs during 2011. Payments of other obligations, which included primarily acquisition related
notes payable, totaled $23.1 million in 2012, compared to $4.5 million during 2011. Cash generated from exercises of stock
options provided $17.7 million and $11.9 million in the years ended December 31, 2012 and 2011, respectively. The excess tax
benefit from share-based payment arrangements reduced income taxes payable by $15.7 million and $8.0 million in the years
ended December 31, 2012 and 2011, respectively.
As part of the consideration for certain of our business acquisitions, we entered into contingent consideration
agreements with the selling shareholders. Under the terms of the contingent consideration agreements, additional payments will
be made to the former owners if specified future events occur or conditions are met, such as meeting profitability or earnings
targets. As of December 31, 2013, the fair value of our contingent consideration liabilities was $55.7 million, which included a
liability for the maximum remaining payment of $49.7 million (£30 million) under the contingent payment arrangement for our
2011 ECP acquisition, which we expect to pay in the first quarter of 2014 either with cash generated from operations or through
draws on our revolving credit facility.
We intend to continue to evaluate markets for potential growth through the internal development of distribution
centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected
business acquisitions. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and
timing of our internal development efforts and the success of those efforts, the costs and timing of expansion of our sales and
marketing activities, and the costs and timing of future business acquisitions.
2014 Outlook
We estimate that our capital expenditures for 2014, excluding business acquisitions, will be between $110 million and
$140 million. We expect to use these funds for several major facility expansions, improvement of current facilities, real estate
acquisitions and systems development projects. We anticipate that net cash provided by operating activities for 2014 will be
approximately $375 million.
Off-Balance Sheet Arrangements and Future Commitments
We do not have any off-balance sheet arrangements or undisclosed borrowings or debt that would be required to be
disclosed pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934. Additionally, we do not have any
synthetic leases.
42
The following table represents our future commitments under contractual obligations as of December 31, 2013 (in
millions):
Contractual obligations
Long-term debt(1)
Capital lease obligations(2)
Operating leases(3)
Purchase obligations(4)
Contingent consideration liabilities(5)
Outstanding letters of credit
Other asset purchase commitments
Purchase price payable
Other long-term obligations
Self-insurance reserves(6)
Deferred compensation plans and other retirement
obligations(7)
Long term incentive plan
Foreign currency forward contracts
Liabilities for unrecognized tax benefits
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
$ 1,634.9
$
86.4
$
140.1
$
679.9
$
728.5
25.4
646.3
142.9
55.9
45.6
37.7
2.1
49.6
27.2
6.9
21.8
1.8
4.7
114.4
142.9
52.5
45.6
25.8
2.1
22.7
2.0
1.9
21.8
0.2
6.2
188.8
1.4
122.7
13.1
220.4
—
3.4
—
8.0
—
17.0
—
5.0
—
0.3
—
—
—
3.9
—
6.3
—
—
—
0.7
—
—
—
—
—
3.6
25.2
—
—
0.6
$ 2,698.1
$
523.0
$
368.8
$
814.9
$
991.4
Total
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Our long-term debt under contractual obligations above includes interest on the balances outstanding as of
December 31, 2013. Interest on our senior notes, notes payable, and other long-term debt is calculated based on the
respective stated rates. Interest on our variable rate credit facilities is calculated based on the weighted average rates,
including the impact of interest rate swaps through their respective expiration dates, in effect for each tranche of
borrowings as of December 31, 2013. Estimated interest expense included in the table above represents $49.1 million
for obligations maturing in less than one year, $92.4 million for obligations maturing in one to three years, $74.1
million for obligations maturing in three to five years, and $128.3 million for obligations maturing in more than five
years.
Interest on capital lease obligations is included based on incremental borrowing or implied rates.
The operating lease payments above do not include certain tax, insurance and maintenance costs, which are also
required contractual obligations under our operating leases but are generally not fixed and can fluctuate from year to
year. These expenses historically average approximately 25% of the corresponding lease payments.
Our purchase obligations include open purchase orders for aftermarket inventory.
Our contingent consideration liabilities reflect the undiscounted estimated payments of additional consideration related
to business combinations. The actual payouts will be determined at the end of the applicable performance periods
based on the acquired entities' achievement of the targets specified in the purchase agreements.
Self-insurance reserves include undiscounted estimated payments, net of estimated insurance recoveries, for our
employee medical benefits, automobile liability, general liability, directors and officers liability, workers'
compensation and property insurance.
Deferred compensation payments are dependent on elected payment dates. While we expect that these payments will
be made more than five years from the latest balance sheet date, payments may be made earlier depending on such
elections. Our deferred compensation plans are funded through investments in life insurance policies. Other retirement
obligations consists of our expected required contributions to Sator's pension plan. We have not included future
funding requirements beyond 2014 in the table above, as these funding projections are not practicable to estimate.
The preceding table does not reflect our acquisition of Keystone Specialty, which we agreed to acquire on December
5, 2013. The transaction closed on January 3, 2014 after obtaining the necessary regulatory approvals and completing all
closing activities. The purchase price included $422.4 million of cash payments (net of cash acquired) and $31.5 million of
notes payable due in 2015. The purchase price is subject to working capital adjustments, which we expect to finalize in 2014.
43
See Note 8, "Business Combinations” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form
10-K for more information regarding our acquisition of Keystone Specialty.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our results of operations are exposed to changes in interest rates primarily with respect to borrowings under our
credit facility, where interest rates are tied to the prime rate, LIBOR or CDOR. Therefore, we implemented a policy to
manage our exposure to variable interest rates on a portion of our outstanding variable rate debt instruments through the use
of interest rate swap contracts. These contracts convert a portion of our variable rate debt to fixed rate debt, matching the
currency, effective dates and maturity dates to specific debt instruments. Net interest payments or receipts from interest rate
swap contracts are included as adjustments to interest expense. All of our interest rate swap contracts have been executed with
banks that we believe are creditworthy (Wells Fargo Bank, N.A., Bank of America, N.A. and RBS Citizens, N.A.).
As of December 31, 2013, we held six interest rate swap contracts representing a total of $420 million of U.S.
dollar-denominated notional amount debt, £50 million of pound sterling-denominated notional amount debt, and CAD $25
million of Canadian dollar-denominated notional amount debt. Our interest rate swap contracts are designated as cash flow
hedges and modify the variable rate nature of that portion of our variable rate debt. These swaps have maturity dates ranging
from October 2015 through December 2016. In total, we had 78% and 64% of our variable rate debt under our credit facility
at fixed rates at December 31, 2013 and 2012, respectively. As of December 31, 2013, the fair market value of these swap
contracts was a net liability of $8.5 million. The values of such contracts are subject to changes in interest rates.
At December 31, 2013, we had $146 million of variable rate debt that was not hedged, and in January 2014, we
increased our revolver borrowings by $370 million and our receivables securitization borrowings by $80 million related to our
acquisition of Keystone Specialty. Including these subsequent borrowings, a 100 basis point movement in interest rates
would change interest expense by $6 million over the next twelve months. To the extent that we have cash investments
earning interest, a portion of the increase in interest expense resulting from a variable rate change would be mitigated by
higher interest income.
The proceeds of our May 2013 senior notes offering were used to finance our euro-denominated acquisition of
Sator, as well as to repay a portion of our pound sterling-denominated revolver borrowings held by our European operations.
In connection with these transactions, in 2013 we entered into euro-denominated and pound sterling-denominated
intercompany notes, which we intend to settle and which may incur transaction gains and losses from fluctuations in the U.S.
dollar against these currencies. To mitigate these fluctuations, we entered into foreign currency forward contracts to sell
€150.0 million for $195.0 million and £70.0 million for $105.8 million. The gains or losses from the remeasurement of these
contracts are recorded to earnings to offset the remeasurement of the related notes. As of December 31, 2013, the fair market
value of these forward contracts was a liability of $21.8 million.
Additionally, we are exposed to currency fluctuations with respect to the purchase of aftermarket products from
foreign countries. The majority of our foreign inventory purchases are from manufacturers based in Taiwan. While our
transactions with manufacturers based in Taiwan are conducted in U.S. dollars, changes in the relationship between the U.S.
dollar and the Taiwan dollar might impact the purchase price of aftermarket products. Our aftermarket operations in Canada,
which also purchase inventory from Taiwan in U.S. dollars, are further subject to changes in the relationship between the U.S.
dollar and the Canadian dollar. Our aftermarket operations in the U.K. also source a portion of their inventory from Taiwan, as
well as from other European countries and China, resulting in exposure to changes in the relationship of the pound sterling
against the euro and the U.S. dollar. We hedge our exposure to foreign currency fluctuations for certain of our purchases in
our European operations, but the notional amount and fair value of these foreign currency forward contracts at December 31,
2013 were immaterial. We do not currently attempt to hedge our foreign currency exposure related to our foreign currency
denominated inventory purchases in our North American operations, and we may not be able to pass on any price increases to
our customers.
Foreign currency fluctuations may also impact the financial results we report for the portions of our business that
operate in functional currencies other than the U.S. dollar. Our operations in Europe and other countries represented 30% of
our revenue during 2013. An increase or decrease in the strength of the U.S. dollar against these currencies by 10% would
result in a 3% change in our consolidated revenue and our operating income for the year ended December 31, 2013.
Other than with respect to our intercompany transactions denominated in euro and pound sterling and a portion of
our foreign currency denominated inventory purchases in the U.K., we do not hold derivative contracts to hedge foreign
currency risk. Our net investment in foreign operations is partially hedged by the foreign currency denominated borrowings
we use to fund foreign acquisitions. Additionally, we have elected not to hedge the foreign currency risk related to the interest
payments on these borrowings as we generate Canadian dollar, pound sterling and euro cash flows that can be used to fund
44
debt payments. As of December 31, 2013, we had amounts outstanding under our revolving credit facility denominated in
Canadian dollars of CAD $110.0 million ($103.6 million), pounds sterling of £72.9 million ($120.6 million) and euros of €7.0
million ($9.6 million).
We are also exposed to market risk related to price fluctuations in scrap metal and other metals. Market prices of
these metals affect the amount that we pay for our inventory as well as the revenue that we generate from sales of these
metals. As both our revenue and costs are affected by the price fluctuations, we have a natural hedge against the
changes. However, there is typically a lag between the effect on our revenue from metal price fluctuations and inventory cost
changes. Therefore, we can experience positive or negative gross margin effects in periods of rising or falling metal prices,
particularly when such prices move rapidly. If market prices were to fall at a greater rate than our vehicle acquisition costs, we
could experience a decline in gross margin. As of December 31, 2013, we held short-term metals forward contracts to
mitigate a portion of our exposure to fluctuations in metals prices specifically related to our precious metals refining and
reclamation business acquired in 2012. The notional amount and fair value of these forward contracts at December 31, 2013
were immaterial.
45
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
*****
INDEX TO FINANCIAL STATEMENTS
LKQ CORPORATION AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Income for the years ended December 31, 2013, 2012, and 2011
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012, and 2011
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012, and 2011
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2013, 2012, and 2011
Notes to Consolidated Financial Statements
Page
47
48
49
49
50
51
52
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of LKQ Corporation:
We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the
"Company") as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income,
cash flows and stockholders' equity for each of the three years in the period ended December 31, 2013. Our audits also included
the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
LKQ Corporation and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth
therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company's internal control over financial reporting as of December 31, 2013, based on the criteria established in
Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 3, 2014 expressed an unqualified opinion on the Company's internal control over
financial reporting.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 3, 2014
47
LKQ CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
Assets
Current Assets:
Cash and equivalents
Receivables, net
Inventory
Deferred income taxes
Prepaid income taxes
Prepaid expenses and other current assets
Total Current Assets
Property and Equipment, net
Intangible Assets:
Goodwill
Other intangibles, net
Other Assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable
Accrued expenses:
Accrued payroll-related liabilities
Other accrued expenses
Income taxes payable
Contingent consideration liabilities
Other current liabilities
Current portion of long-term obligations
Total Current Liabilities
Long-Term Obligations, Excluding Current Portion
Deferred Income Taxes
Contingent Consideration Liabilities
Other Noncurrent Liabilities
Commitments and Contingencies
Stockholders’ Equity:
Common stock, $0.01 par value,1,000,000,000 and 500,000,000 shares authorized,
300,805,276 and 297,810,896 shares issued and outstanding at December 31, 2013
and 2012, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
December 31,
2013
2012
$
150,488
$
458,094
1,076,952
63,938
8,069
42,276
1,799,817
546,651
59,770
311,808
900,803
53,485
29,537
28,948
1,384,351
494,379
1,937,444
1,690,284
153,739
81,123
106,715
47,727
$
4,518,774
$
3,723,456
$
349,069
$
219,335
58,695
140,074
17,440
52,465
18,675
41,535
677,953
1,264,246
133,822
3,188
88,820
44,400
90,422
2,748
42,255
17,068
71,716
487,944
1,046,762
102,275
47,754
74,627
3,008
1,006,084
1,321,642
20,011
2,978
950,338
1,010,019
759
2,350,745
1,964,094
$
4,518,774
$
3,723,456
The accompanying notes are an integral part of the consolidated financial statements.
48
LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data)
Revenue
Cost of goods sold
Gross margin
Facility and warehouse expenses
Distribution expenses
Selling, general and administrative expenses
Restructuring and acquisition related expenses
Depreciation and amortization
Operating income
Other expense (income):
Interest expense
Loss on debt extinguishment
Change in fair value of contingent consideration liabilities
Interest and other income, net
Total other expense, net
Income before provision for income taxes
Provision for income taxes
Net income
Earnings per share:
Basic
Diluted
Year Ended December 31,
2013
5,062,528
2,987,126
2,075,402
425,081
431,947
597,052
10,173
80,969
530,180
51,184
2,795
2,504
(2,130)
54,353
475,827
164,204
311,623
1.04
1.02
$
$
$
$
2012
4,122,930
2,398,790
1,724,140
347,917
375,835
495,591
2,751
64,093
437,953
31,429
—
1,643
(4,286)
28,786
409,167
147,942
261,225
0.88
0.87
$
$
$
$
2011
3,269,862
1,877,869
1,391,993
293,423
287,626
391,942
7,590
49,929
361,483
24,307
5,345
(1,408)
(2,532)
25,712
335,771
125,507
210,264
0.72
0.71
$
$
$
$
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation
Net change in unrecognized gains/losses on derivative instruments, net of tax
Unrealized gain on pension plan, net of tax
Total other comprehensive income (loss)
Total comprehensive income
Year Ended December 31,
2013
311,623
$
2012
261,225
$
2011
210,264
14,056
4,495
701
19,252
330,875
$
12,921
(3,201)
—
9,720
270,945
$
(4,273)
(9,066)
—
(13,339)
196,925
$
$
The accompanying notes are an integral part of the consolidated financial statements.
49
LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Deferred income taxes
Excess tax benefit from stock-based payments
Other
Changes in operating assets and liabilities, net of effects from acquisitions:
Receivables
Inventory
Prepaid expenses and other assets
Prepaid income taxes/income taxes payable
Accounts payable
Accrued expenses and other current liabilities
Other noncurrent liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from sales of property and equipment
Investment in unconsolidated subsidiary
Acquisitions, net of cash acquired
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
Excess tax benefit from stock-based payments
Debt issuance costs
Proceeds from issuance of senior notes
Borrowings under revolving credit facility
Repayments under revolving credit facility
Borrowings under term loans
Repayments under term loans
Borrowings under receivables securitization facility
Repayments under receivables securitization facility
Repayments of other long-term debt
Payments of other obligations
Net cash provided by financing activities
Effect of exchange rate changes on cash and equivalents
Net increase (decrease) in cash and equivalents
Cash and equivalents, beginning of period
Cash and equivalents, end of period
Supplemental disclosure of cash paid for:
Income taxes, net of refunds
Interest
Supplemental disclosure of noncash investing and financing activities:
Notes payable and long-term obligations, including notes issued in connection with business
acquisitions
Contingent consideration liabilities
Non-cash property and equipment additions
Year Ended December 31,
2013
2012
2011
$
311,623
$
261,225
$
210,264
86,463
22,036
4,279
(18,348)
9,630
(44,670)
(69,222)
(5,224)
49,993
49,641
23,256
8,599
428,056
(90,186)
2,100
(9,136)
(408,384)
(505,606)
15,392
18,348
(16,940)
600,000
437,023
(748,086)
35,000
(16,875)
41,500
(121,500)
(45,062)
(32,859)
165,941
2,327
90,718
59,770
150,488
110,862
45,253
8,360
3,854
6,615
$
$
$
70,165
15,634
4,222
(15,737)
4,515
(12,813)
(95,042)
(18,952)
(774)
(15,097)
2,208
6,636
206,190
(88,255)
1,057
—
(265,336)
(352,534)
17,693
15,737
(253)
—
742,381
(855,402)
200,000
(20,000)
82,700
(2,700)
(18,791)
(4,293)
157,072
795
11,523
48,247
59,770
146,478
29,026
21,626
5,456
21,031
54,505
13,107
9,302
(7,973)
6,556
(18,074)
(90,091)
(5,094)
2,251
28,589
(3,303)
11,733
211,772
(86,416)
1,743
—
(486,934)
(571,607)
11,919
7,973
(11,048)
—
1,111,369
(453,867)
250,000
(600,464)
—
—
(4,471)
—
311,411
982
(47,442)
95,689
48,247
113,433
21,354
56,429
81,239
3,981
$
$
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
50
LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(In thousands)
Common Stock
Shares
Issued
Amount
Additional
Paid-
In Capital
Retained
Earnings
BALANCE, January 1, 2011
290,933
$
2,909
$ 868,344
$ 538,530
Net income
Other comprehensive loss
Restricted stock units vested
Stock issued as director
compensation
Stock-based compensation
expense
Exercise of stock options
Excess tax benefit from stock-
based payments
—
—
164
32
—
2,768
—
—
—
2
—
—
28
—
—
—
(2)
399
12,708
11,891
7,973
210,264
—
—
—
—
—
—
BALANCE, December 31, 2011
293,897
$
2,939
$ 901,313
$ 748,794
$
Net income
Other comprehensive income
Restricted stock units vested
Stock-based compensation
expense
Exercise of stock options
Excess tax benefit from stock-
based payments
—
—
467
—
3,447
—
—
—
5
—
34
—
—
—
(5)
15,634
17,659
15,737
261,225
—
—
—
—
—
Accumulated
Other
Comprehensive
Income (Loss)
4,378
$
Total
Stockholders’
Equity
$ 1,414,161
—
(13,339)
210,264
(13,339)
—
—
—
—
—
399
12,708
11,919
—
7,973
(8,961) $ 1,644,085
261,225
—
9,720
—
—
—
—
9,720
—
15,634
17,693
15,737
BALANCE, December 31, 2012
297,811
$
2,978
$ 950,338
$1,010,019
$
759
$ 1,964,094
Net income
Other comprehensive income
Restricted stock units vested
Stock-based compensation
expense
Exercise of stock options
Excess tax benefit from stock-
based payments
—
—
595
—
2,399
—
—
—
6
—
24
—
—
—
(6)
22,036
15,368
18,348
311,623
—
—
—
—
—
—
19,252
—
—
—
—
311,623
19,252
—
22,036
15,392
18,348
BALANCE, December 31, 2013
300,805
$
3,008
$1,006,084
$1,321,642
$
20,011
$ 2,350,745
The accompanying notes are an integral part of the consolidated financial statements.
51
LKQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business
The financial statements presented in this report represent the consolidation of LKQ Corporation, a Delaware
corporation, and its subsidiaries. LKQ Corporation is a holding company and all operations are conducted by subsidiaries.
When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation
and its consolidated subsidiaries.
We provide replacement parts, components and systems needed to repair cars and trucks. We are the nation's largest
provider of alternative vehicle collision replacement products, and a leading provider of alternative vehicle mechanical
replacement products. We also have operations in the United Kingdom, the Netherlands, Belgium, Northern France, Canada,
Mexico and Central America. In total, we operate more than 570 facilities.
In 2012, our Board of Directors approved a two-for-one split of our common stock. The stock split was completed in
the form of a stock dividend that was issued on September 18, 2012 to stockholders of record at the close of business on August
28, 2012. The stock began trading on a split adjusted basis on September 19, 2012. The Company’s historical share and per
share information within this Annual Report on Form 10-K has been retroactively adjusted to give effect to this stock split.
At the 2013 Annual Meeting of Stockholders in May 2013, our stockholders approved an amendment to our
Certificate of Incorporation to increase the number of authorized shares of common stock from 500 million to 1 billion. The
increased number of authorized shares is reflected on our Consolidated Balance Sheet as of December 31, 2013.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of LKQ Corporation and its subsidiaries.
All intercompany transactions and accounts have been eliminated.
Use of Estimates
In preparing our financial statements in conformity with accounting principles generally accepted in the United States
we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The majority of our revenue is derived from the sale of vehicle parts. Revenue is recognized when the products are
shipped, delivered to or picked up by customers and title has transferred, subject to an allowance for estimated returns,
discounts and allowances that we estimate based upon historical information. We recorded a reserve for estimated returns,
discounts and allowances of approximately $26.6 million and $24.7 million at December 31, 2013 and 2012, respectively. We
present taxes assessed by governmental authorities collected from customers on a net basis. Therefore, the taxes are excluded
from revenue on our Consolidated Statements of Income and are shown as a current liability on our Consolidated Balance
Sheets until remitted. We recognize revenue from the sale of scrap, cores and other metals when title has transferred, which
typically occurs upon delivery to the customer. Revenue also includes amounts billed to customers for shipping and handling.
Distribution expenses in the accompanying Consolidated Statements of Income are the costs incurred to prepare and deliver
products to customers.
Receivables and Allowance for Doubtful Accounts
In the normal course of business, we extend credit to customers after a review of each customer's credit history. We
recorded a reserve for uncollectible accounts of approximately $14.4 million and $9.5 million at December 31, 2013 and 2012,
respectively. The reserve is based upon the aging of the accounts receivable, our assessment of the collectability of specific
customer accounts and historical experience. Receivables are written off once collection efforts have been exhausted.
Recoveries of receivables previously written off are recorded when received.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and
equivalents and accounts receivable. We control our exposure to credit risk associated with these instruments by (i) placing our
52
cash and equivalents with several major financial institutions; (ii) holding high-quality financial instruments; and
(iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. In
addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is
composed of a large number of geographically diverse customers.
Inventory
We classify our inventory into the following categories: aftermarket and refurbished vehicle replacement products;
and salvage and remanufactured vehicle replacement products.
An aftermarket product is a new vehicle product manufactured by a company other than the original equipment
manufacturer. Cost is established based on the average price we pay for parts, and includes expenses incurred for freight and
overhead costs. For items purchased from foreign companies, import fees and duties and transportation insurance are also
included. Refurbished inventory cost is based on the average price we pay for cores, which are recycled automotive parts that
are not suitable for sale as a replacement part without further processing. The cost of our refurbished inventory also includes
expenses incurred for freight, labor and other overhead.
A salvage product is a recycled vehicle part suitable for sale as a replacement part. Cost is established based upon the
price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling.
Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that
percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based
on a part's days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical
profitability for salvage vehicles. Remanufactured inventory cost is based upon the price paid for cores, and also includes
expenses incurred for freight, direct manufacturing costs and overhead.
For all inventory, carrying value is recorded at the lower of cost or market and is reduced to reflect current anticipated
demand. If actual demand differs from our estimates, additional reductions to inventory carrying value would be necessary in
the period such determination is made.
Inventory consists of the following (in thousands):
Aftermarket and refurbished products
Salvage and remanufactured products
Property and Equipment
December 31,
2013
706,600
370,352
1,076,952
$
$
$
$
2012
523,677
377,126
900,803
Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and
improvements that extend the useful life of the related asset are capitalized. As property and equipment are sold or retired, the
applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is
recognized. Construction in progress consists primarily of building and land improvements at our existing facilities.
Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold
improvements, the term of the related lease and reasonably assured renewal periods, if shorter.
Our estimated useful lives are as follows:
Land improvements
Buildings and improvements
Furniture, fixtures and equipment
Computer equipment and software
Vehicles and trailers
10-20 years
20-40 years
3-20 years
3-10 years
3-10 years
53
Property and equipment consists of the following (in thousands):
Land and improvements
Buildings and improvements
Furniture, fixtures and equipment
Computer equipment and software
Vehicles and trailers
Leasehold improvements
Less—Accumulated depreciation
Construction in progress
Intangible Assets
December 31,
2013
2012
$
101,018
$
143,535
282,862
108,424
64,381
108,625
808,845
(294,183)
31,989
87,720
133,368
243,565
91,588
51,187
91,280
698,708
(231,130)
26,801
$
546,651
$
494,379
Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the
identifiable net assets acquired) and other specifically identifiable intangible assets, such as trade names, trademarks, customer
relationships and covenants not to compete.
Goodwill is tested for impairment at least annually, and we performed annual impairment tests during the fourth
quarters of 2013, 2012 and 2011. The results of all of these tests indicated that goodwill was not impaired.
The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands):
Balance as of January 1, 2011
Business acquisitions and adjustments to previously recorded goodwill
Exchange rate effects
Balance as of December 31, 2011
Business acquisitions and adjustments to previously recorded goodwill
Exchange rate effects
Balance as of December 31, 2012
Business acquisitions and adjustments to previously recorded goodwill
Exchange rate effects
Balance as of December 31, 2013
North America
Europe
Total
$
1,032,973
$
— $
1,032,973
105,177
(1,520)
1,136,630
$
$
201,742
1,459
337,031
2,402
339,433
(4,140)
15,160
442,208
882
$
1,476,063
197,602
16,619
$
1,339,831
$
350,453
$
1,690,284
27,035
(7,929)
1,358,937
$
208,412
19,642
235,447
11,713
$
578,507
$
1,937,444
In 2013 and 2012, we finalized the valuation of certain intangible assets acquired related to our 2012 and 2011
acquisitions, respectively. As these adjustments did not have a material impact on our financial position or results of operations,
we recorded these adjustments to goodwill and amortization expense in 2013 and 2012, respectively.
The components of other intangibles are as follows (in thousands):
December 31, 2013
December 31, 2012
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Trade names and trademarks
$
143,577
$
(27,950) $
115,627
$
118,422
$
Customer relationships
Software and other technology
related assets
Covenants not to compete
29,583
(10,770)
18,813
14,426
20,384
3,979
(2,718)
(2,346)
17,666
1,633
—
3,654
$
197,523
$
(43,784) $
153,739
$
136,502
$
(21,599) $
(6,642)
—
(1,546)
(29,787) $
Net
96,823
7,784
—
2,108
106,715
54
During 2013, we recorded $23.9 million of trade names, $19.3 million of software and technology related assets,
$14.1 million of customer relationships and $0.3 million of covenants not to compete resulting from our 2013 acquisitions and
adjustments to certain preliminary intangible asset valuations from our 2012 acquisitions. The trade names, software and
technology related assets, and customer relationships recorded in 2013 included $23.5 million, $19.3 million and $2.5 million,
respectively, related to our acquisition of Sator Beheer B.V. ("Sator") as discussed in Note 8, "Business Combinations." We
also recognized $11.4 million of customer relationships related to our acquisitions of five automotive paint distributors in 2013.
In 2012, we recorded $0.6 million of trade names, $4.1 million of customer relationships and $0.6 million of covenants not to
compete resulting from our 2012 acquisitions and adjustments to certain preliminary intangible asset valuations from our 2011
acquisitions.
Trade names and trademarks are amortized over a useful life ranging from 10 to 30 years on a straight-line basis.
Customer relationships are amortized over the expected period to be benefited (5 to 13 years) on either a straight-line or
accelerated basis. Software and other technology related assets are amortized on a straight-line basis over the expected period
to be benefited (five years). Covenants not to compete are amortized over the lives of the respective agreements, which range
from one to five years, on a straight-line basis. Amortization expense for intangibles was $13.8 million, $9.5 million and $7.9
million during the years ended December 31, 2013, 2012 and 2011, respectively. Estimated amortization expense for each of
the five years in the period ending December 31, 2018 is $17.0 million, $15.1 million, $13.9 million, $13.2 million and $10.1
million, respectively.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying
amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not
recoverable, the carrying amount of such assets is reduced to fair value. There were no material adjustments to the carrying
value of long-lived assets during the years ended December 31, 2013, 2012 or 2011.
Warranty Reserve
Some of our salvage mechanical products are sold with a standard six month warranty against defects. Additionally,
some of our remanufactured engines are sold with a standard three year warranty against defects. We also provide a limited
lifetime warranty for certain of our aftermarket products that is supported by certain of the suppliers of those products. We
record the estimated warranty costs at the time of sale using historical warranty claim information to project future warranty
claims activity. The changes in the warranty reserve are as follows (in thousands):
Balance as of January 1, 2012
Warranty expense
Warranty claims
Business acquisitions
Balance as of December 31, 2012
Warranty expense
Warranty claims
Balance as of December 31, 2013
$
$
$
7,347
29,628
(27,514)
1,113
10,574
29,674
(27,801)
12,447
Self-Insurance Reserves
We self-insure a portion of employee medical benefits under the terms of our employee health insurance program. We
purchase certain stop-loss insurance to limit our liability exposure. We also self-insure a portion of our property and casualty
risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation and property
coverage, under deductible insurance programs. The insurance premium costs are expensed over the contract periods. A reserve
for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our
estimate of ultimate cost, which is calculated using analyses of historical data. We monitor new claims and claim development
as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves. Total
self-insurance reserves were $55.6 million and $44.1 million, including $25.8 million and $21.5 million classified as Other
Accrued Expenses, as of December 31, 2013 and 2012, respectively. The remaining balances of self-insurance reserves are
classified as Other Noncurrent Liabilities, which reflects management's estimates of when claims will be paid. The reserves
presented on the Consolidated Balance Sheets are net of claims deposits of $0.5 million at both December 31, 2013 and 2012.
In addition to these claims deposits, we had outstanding letters of credit of $43.0 million and $37.1 million at December 31,
2013 and 2012, respectively, to guarantee self-insurance claims payments. While we do not expect the amounts ultimately paid
55
to differ significantly from our estimates, our insurance reserves and corresponding expenses could be affected if future claims
experience differs significantly from historical trends and assumptions.
Income Taxes
Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that
do not enter into the computation of income taxes payable in the same year. Deferred income taxes have been provided to show
the effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial
statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either
expire before we are able to realize their benefit or that future deductibility is uncertain.
We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for
income taxes only for those positions that are more likely than not to be realized. We follow a two-step approach to recognizing
and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight
of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more
than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax
positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Our
policy is to include interest and penalties associated with income tax obligations in income tax expense.
U.S. federal income taxes are not provided on our interest in undistributed earnings of foreign subsidiaries when it is
management's intent that such earnings will remain invested in those subsidiaries or other foreign subsidiaries. Taxes will be
provided on these earnings in the period in which a decision is made to repatriate the earnings.
Investment in Unconsolidated Subsidiary
In August 2013, we entered into an agreement with Suncorp Group, a leading general insurance group in Australia and
New Zealand, to develop ACM Parts Pty Ltd ("ACM Parts"), an alternative vehicle replacement parts business in those
countries. We hold a 49% equity interest in the entity and will contribute our experience to help establish automotive parts
recycling operations and to facilitate the procurement of aftermarket parts; Suncorp Group holds a 51% equity interest and will
supply salvage vehicles to the venture as well as assist in establishing relationships with repair shops as customers. We are
accounting for our interest in this subsidiary using the equity method of accounting, as our investment gives us the ability to
exercise significant influence, but not control, over the investee. The total of our investment in ACM Parts is included within
Other Assets on our Consolidated Balance Sheets. As of December 31, 2013, the carrying value of our investment in this
unconsolidated subsidiary was $8.9 million. Our equity in the net earnings of the investee for the year ended December 31,
2013 was not material.
Depreciation Expense
Included in Cost of Goods Sold on the Consolidated Statements of Income is depreciation expense associated with our
refurbishing, remanufacturing, and furnace operations and our distribution centers.
Rental Expense
We recognize rental expense on a straight-line basis over the respective lease terms, including reasonably-assured
renewal periods, for all of our operating leases.
Foreign Currency Translation
For most of our foreign operations, the local currency is the functional currency. Assets and liabilities are translated
into U.S. dollars at the period-ending exchange rate. Statements of Income amounts are translated to U.S. dollars using average
exchange rates during the period. Translation gains and losses are reported as a component of Accumulated Other
Comprehensive Income (Loss) in stockholders' equity.
Recent Accounting Pronouncements
Effective January 1, 2013, we adopted the FASB ASU 2013-02, “Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income.” This update requires disclosure of amounts reclassified out of accumulated other
comprehensive income ("AOCI") by component. In addition, an entity is required to present, either on the face of the financial
statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income. For
amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other
disclosures that provide additional details about those amounts. The update does not change the items reported in other
56
comprehensive income or when an item of other comprehensive income is reclassified to net income. As this guidance only
revises the presentation and disclosures related to the reclassification of items out of AOCI, the adoption of this guidance will
not affect our financial position, results of operations or cash flows. See Note 12, "Accumulated Other Comprehensive Income
(Loss)" for the additional required disclosures.
Note 3. Equity Incentive Plans
In order to attract and retain employees, non-employee directors, consultants, and other persons associated with us, we
may grant qualified and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”),
performance shares and performance units under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive
Plan”). The total number of shares approved by our stockholders for issuance under the Equity Incentive Plan is 69.9 million
shares, subject to antidilution and other adjustment provisions. We have granted RSUs, stock options, and restricted stock
under the Equity Incentive Plan. Of the shares approved by our stockholders for issuance under the Equity Incentive Plan, 14
million shares remained available for issuance as of December 31, 2013. We expect to issue new shares of common stock to
cover past and future equity grants.
As a result of the stock split in September 2012 as discussed in Note 1, "Business," the following adjustments were
made in accordance with the nondiscretionary antidilution provisions of our 1998 Equity Incentive Plan: the number of shares
available for issuance doubled; the number of outstanding RSUs, shares subject to stock options and shares of restricted stock
all also doubled; and the exercise prices of outstanding stock options were reduced to 50% of the exercise prices prior to the
stock split.
RSUs
RSUs vest over periods of up to five years, subject to a continued service condition. Each RSU converts into one share
of LKQ common stock on the applicable vesting date. Shares of restricted stock may not be sold, pledged or otherwise
transferred until they vest. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date.
In March 2013, the Compensation Committee approved the cancellation of 671,400 unvested RSUs held by our
executive officers and approved the issuance of 946,800 RSUs containing both a performance-based vesting condition and a
time-based vesting condition. Of the 946,800 RSUs, 671,400 were granted as a replacement of the canceled RSUs and include
a performance-based condition that the Company reports positive diluted earnings per share, subject to certain adjustments,
during the year ending December 31, 2013. In addition, these RSUs retain the same remaining time-based vesting conditions as
the canceled RSUs (vesting in equal tranches each six months beginning July 2013 through either January 2016 or January
2017). The remaining 275,400 RSUs granted in March 2013 include a performance-based condition that the Company reports
positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the
grant date. In addition, these RSUs include a time-based vesting condition, vesting in equal tranches each six months beginning
July 2013 through January 2016. In all cases, both conditions must be met before any RSUs vest. If the applicable
performance-based condition of an RSU is not met, the RSU is forfeited. If and when the performance-based condition is met,
all applicable RSUs that had previously met the time-based vesting condition will vest immediately and the remaining RSUs
will vest according to the remaining schedule of the time-based condition.
The fair value of RSUs that vested during the years ended December 31, 2013, 2012 and 2011 was $14.4 million, $7.8
million and $2.2 million, respectively.
In January 2014, our Board of Directors granted 585,160 RSUs to employees.
Stock Options
Stock options vest over periods of up to five years, subject to a continued service condition. Stock options expire
ten years from the date they are granted.
The total grant-date fair value of options that vested during the years ended December 31, 2013, 2012 and 2011 was
$5.1 million, $7.2 million and $8.6 million respectively. The total intrinsic value (market value of stock less option exercise
price) of stock options exercised was $46.9 million, $45.3 million and $24.8 million during the years ended December 31,
2013, 2012 and 2011, respectively.
Restricted Stock
Restricted stock vests over a five year period, subject to a continued service condition. Shares of restricted stock may
not be sold, pledged or otherwise transferred until they vest.
The fair value of restricted stock that vested during the years ended December 31, 2013, 2012 and 2011 was $2.3
million, $1.6 million and $1.1 million, respectively.
57
A summary of transactions in our stock-based compensation plans is as follows:
RSUs
Stock Options
Restricted Stock
Shares
Available For
Grant
4,280,180
Number
Outstanding
Weighted
Average
Grant Date
Fair Value
Number
Outstanding
Weighted
Average
Exercise
Price
Number
Outstanding
Weighted
Average
Grant Date
Fair Value
— $
— 16,147,930
$
6.14
308,000
$
9.50
(1,643,348)
1,643,348
11.80
—
(31,166)
—
—
346,704
—
—
(164,862)
(44,904)
—
—
— (2,768,038)
—
(301,800)
11.84
11.77
12,800,000
—
—
—
—
—
4.31
—
8.44
—
—
—
—
(96,000)
—
—
—
—
—
9.51
—
—
Balance, January 1, 2011
Granted
Shares Issued for Director
Compensation
Exercised
Vested
Canceled
Additional Shares
Authorized
Balance, December 31, 2011
15,752,370
1,433,582
$
11.80
13,078,092
$
6.47
212,000
$
9.49
Granted
Exercised
Vested
Canceled
(1,504,410)
1,504,410
—
—
395,972
—
(467,208)
(119,422)
Balance, December 31, 2012
14,643,932
2,351,362
$
Granted
Exercised
Vested
Canceled
(924,312)
924,312
—
—
245,820
—
(594,961)
(122,500)
Balance, December 31, 2013
13,965,440
2,558,213
$
—
— (3,446,472)
—
(276,550)
9,355,070
15.86
13.09
14.03
14.02
22.18
—
— (2,399,419)
—
(123,320)
6,832,331
15.05
16.25
16.63
—
5.13
—
8.30
6.90
—
6.41
—
8.89
7.04
$
$
—
—
(96,000)
—
116,000
$
—
—
(96,000)
—
20,000
$
—
—
9.51
—
9.47
—
—
9.51
—
9.30
The RSUs containing a performance-based vesting condition that were granted in replacement of canceled RSUs were
accounted for as a modification of the original awards, and therefore are not reflected as grants or cancellations in the table
above.
The following table summarizes information about expected to vest RSUs and restricted stock, and vested and
expected to vest options at December 31, 2013:
RSUs
Stock options
Restricted stock
Weighted
Average
Remaining
Contractual
Life (Yrs)
2.8
4.2
0.8
Intrinsic
Value
(in thousands)
$
$
81,009
175,394
658
Weighted
Average
Exercise
Price
—
7.02
—
Shares
2,462,273
6,776,241
20,000
The aggregate intrinsic value represents the total pre-tax intrinsic value based on our closing stock price of $32.90 on
December 31, 2013. This amount changes based upon the fair market value of our common stock. The aggregate intrinsic value
of total outstanding RSUs and restricted stock was $84.2 million and $0.7 million at December 31, 2013, respectively.
58
The following table summarizes information about outstanding and exercisable stock options at December 31, 2013:
Range of Exercise Prices
$1.50 - $3.50
$3.51 - $5.50
$5.51 - $7.50
$7.51 - $9.50
$9.51 +
Outstanding
Weighted
Average
Remaining
Contractual
Life (Yrs)
Weighted
Average
Exercise
Price
0.9
2.5
5.0
5.1
5.4
4.2
$
$
2.20
4.84
5.98
9.23
9.85
7.04
Shares
791,646
1,381,400
1,575,714
203,166
2,880,405
6,832,331
Exercisable
Weighted
Average
Remaining
Contractual
Life (Yrs)
Weighted
Average
Exercise
Price
0.9
2.5
5.0
5.0
5.2
3.9
$
$
2.20
4.84
5.98
9.24
9.81
6.65
Shares
791,646
1,381,400
1,342,293
175,366
2,060,757
5,751,462
The aggregate intrinsic value of outstanding and exercisable stock options at December 31, 2013 was $176.7 million
and $151.0 million, respectively.
For the 2013 RSU grants that contain both a performance-based vesting condition and a time-based vesting condition,
we recognize compensation expense under the accelerated attribution method, pursuant to which expense is recognized over the
requisite service period for each separate vesting tranche of the award. For the RSUs that were canceled and replaced, the fair
values of the RSUs immediately before and after the modification were the same. As a result, there was no charge recorded in
2013 and the expense for these RSUs was continued at the grant date fair value. During the year ended December 31, 2013, we
recognized $8.3 million of stock based compensation expense related to the RSUs containing a performance-based vesting
condition. For all other awards, which are subject to only a time-based vesting condition, we recognize compensation expense
on a straight-line basis over the requisite service period of the entire award.
In all cases, compensation expense is adjusted to reflect estimated forfeitures. When estimating forfeitures, we
consider voluntary and involuntary termination behavior as well as analysis of historical forfeitures.
The components of pre-tax stock-based compensation expense are as follows (in thousands):
RSUs
Stock options
Restricted stock
Stock issued to non-employee directors
Total stock-based compensation expense
Year Ended December 31,
2013
2012
2011
$
$
17,299
$
8,411
$
4,529
208
—
6,310
913
—
3,666
8,129
913
399
22,036
$
15,634
$
13,107
The following table sets forth the classification of total stock-based compensation expense included in our
Consolidated Statements of Income (in thousands):
Cost of goods sold
Facility and warehouse expenses
Selling, general and administrative expenses
Income tax benefit
Total stock-based compensation expense, net of tax
Year Ended December 31,
2013
2012
2011
$
$
392
$
376
$
2,745
18,899
22,036
(8,594)
13,442
$
2,465
12,793
15,634
(6,097)
9,537
$
327
2,391
10,389
13,107
(5,059)
8,048
We have not capitalized any stock-based compensation costs during the years ended December 31, 2013, 2012 or
2011.
59
As of December 31, 2013, unrecognized compensation expense related to unvested RSUs, stock options and restricted
stock is expected to be recognized as follows (in thousands):
2014
2015
2016
2017
2018
Total unrecognized compensation expense $
RSUs
Stock
Options
Restricted
Stock
Total
$
12,522
$
2,724
$
139
$
15,385
9,123
5,611
2,666
118
69
—
—
—
—
—
—
—
9,192
5,611
2,666
118
30,040
$
2,793
$
139
$
32,972
Note 4. Long-Term Obligations
Long-Term Obligations consist of the following (in thousands):
Senior secured credit agreement:
Term loans payable
Revolving credit facility
Senior notes
Receivables securitization facility
Notes payable through October 2018 at weighted average interest rates of 1.1% and 1.7%,
respectively
Other long-term debt at weighted average interest rates of 3.5% and 3.3%, respectively
Less current maturities
December 31,
2013
2012
$
$
$
438,750
233,804
600,000
—
15,730
17,497
420,625
553,964
—
80,000
42,398
21,491
1,305,781
(41,535)
1,264,246
$
1,118,478
(71,716)
1,046,762
The scheduled maturities of long-term obligations outstanding at December 31, 2013 are as follows (in thousands):
2014
2015
2016
2017
2018
Thereafter
$
41,535
27,934
25,240
23,334
583,140
604,598
$
1,305,781
Senior Secured Credit Agreement
On May 3, 2013, we entered into an amended and restated credit agreement (the "Credit Agreement") with the several
lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, Bank of America
N.A., as syndication agent, The Bank of Tokyo-Mitsubishi UFJ, LTD ("BTMU") and RBS Citizens, N.A., as co-documentation
agents, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BTMU, and RBS Citizens,
N.A., as joint lead arrangers and joint bookrunners. The Credit Agreement retains many of the terms of the Company's
amended and restated credit agreement dated September 30, 2011 (the “Original Credit Agreement”) while also modifying
certain terms to (1) extend the maturity date by approximately two years to May 3, 2018; (2) increase the total availability
under the Credit Agreement from $1.4 billion to $1.8 billion (composed of $1.2 billion in the revolving credit facility's
multicurrency component, $150 million in the revolving credit facility's US dollar component, and $450 million of term loans);
(3) increase the amount of letters of credit that may be issued under the revolving credit facility to $150 million from $125
million; (4) raise the amount of the swing line loans available under the revolving credit facility to $50 million from $25
60
million; (5) increase the maximum net leverage ratio covenant; (6) add certain subsidiaries as additional borrowers under the
revolving credit facility; and (7) make other immaterial or clarifying modifications and amendments to the terms of the
Original Credit Agreement. The Credit Agreement allows the Company to increase the amount of the revolving credit facility
or obtain incremental term loans up to the greater of $400 million or the amount that may be borrowed while maintaining a
senior secured leverage ratio of less than or equal to 2.50 to 1.00, subject to the agreement of the lenders. The proceeds of the
Credit Agreement were used to repay amounts outstanding under the Original Credit Agreement, to pay fees related to the
amendment and restatement, and for general corporate purposes.
Amounts under the revolving credit facility are due and payable upon maturity of the Credit Agreement on May 3,
2018. Amounts under the initial and additional term borrowings are due and payable in quarterly installments equal to 1.25% of
the original principal amount beginning on September 30, 2013 with the remaining balance due and payable on the maturity
date of the Credit Agreement. We are required to prepay the term loan by amounts equal to proceeds from the sale or
disposition of certain assets if the proceeds are not reinvested within twelve months. We also have the option to prepay
outstanding amounts under the Credit Agreement without penalty.
The Credit Agreement contains customary representations and warranties, and contains customary covenants that
provide limitations and conditions on our ability to enter into certain transactions. The Credit Agreement also contains financial
and affirmative covenants under which we (i) may not exceed a maximum net leverage ratio of 3.50 to 1.00 (an increase from
3.00 to 1.00 under the Original Credit Agreement), except in connection with permitted acquisitions with aggregate
consideration in excess of $200 million during any period of four consecutive fiscal quarters in which case the maximum net
leverage ratio may increase to 4.00 to 1.00 for the subsequent four fiscal quarters (an increase from 3.50 to 1.00 under the
Original Credit Agreement) and (ii) are required to maintain a minimum interest coverage ratio of 3.00 to 1.00.
Borrowings under the Credit Agreement bear interest at variable rates, which depend on the currency and duration of
the borrowing elected, plus an applicable margin. The applicable margin is subject to change in increments of 0.25% depending
on our net leverage ratio. Interest payments are due on the last day of the selected interest period or quarterly in arrears
depending on the type of borrowing. Including the effect of the interest rate swap agreements described in Note 5, "Derivative
Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding against the Credit
Agreement at December 31, 2013 and 2012 were 3.05% and 2.85%, respectively. We also pay a commitment fee based on the
average daily unused amount of the revolving credit facility. The commitment fee is subject to change in increments of 0.05%
depending on our net leverage ratio. In addition, we pay a participation commission on outstanding letters of credit at an
applicable rate based on our net leverage ratio, as well as a fronting fee of 0.125% to the issuing bank, which are due quarterly
in arrears. Borrowings under the Credit Agreement totaled $672.6 million and $974.6 million at December 31, 2013 and 2012,
respectively, of which $22.5 million and $31.9 million were classified as current maturities, respectively. As of December 31,
2013, there were letters of credit outstanding in the aggregate amount of $45.6 million. The amounts available under the
revolving credit facility are reduced by the amounts outstanding under letters of credit, and thus availability on the revolving
credit facility at December 31, 2013 was $1.1 billion. In January 2014, we increased our borrowings under the Credit
Agreement by $370 million in connection with our acquisition of Keystone Specialty, as described in Note 8, "Business
Combinations."
Related to the execution of the Credit Agreement, we incurred $7.2 million of fees, of which $6.1 million were
capitalized within Other Assets on our Consolidated Balance Sheet and are amortized over the term of the agreement. The
remaining $1.1 million of fees were expensed, together with $1.7 million of capitalized debt issuance costs related to the
Original Credit Agreement, as a loss on debt extinguishment in our Consolidated Statements of Income for the year ended
December 31, 2013.
Senior Notes
On May 9, 2013, we completed an offering of $600 million aggregate principal amount of senior notes due May 15,
2023 (the "Notes") in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933.
The proceeds from the offering were used to repay revolver borrowings under our Credit Agreement, including amounts
borrowed to finance our acquisition of Sator in May 2013 as discussed further in Note 8, "Business Combinations," to pay
related fees and expenses and for general corporate purposes. The Notes are governed by the Indenture dated as of May 9, 2013
among LKQ Corporation, certain of our subsidiaries (the "Guarantors") and U.S. Bank National Association, as trustee.
The Notes bear interest at a rate of 4.75% per year from the date of the original issuance or from the most recent
payment date on which interest has been paid or provided for. Interest on the Notes is payable in arrears on May 15 and
November 15 of each year. The first interest payment was made on November 15, 2013. The Notes are fully and
unconditionally guaranteed, jointly and severally, by the Guarantors.
The Notes and the guarantees are our and each Guarantor's senior unsecured obligations and are subordinated to all of
the Guarantor's existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Notes are
61
effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Notes to the extent of the assets
of those subsidiaries.
The Notes will be redeemable, in whole or in part, at any time on or after May 15, 2018 on the redemption dates and at
the respective redemption prices specified in the Indenture. In addition, we may redeem up to 35% of the notes before May 15,
2016 with the net cash proceeds from certain equity offerings. We may also redeem some or all of the notes before May 15,
2018 at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption
date, plus a "make whole" premium. We may be required to make an offer to purchase the notes upon the sale of certain assets,
subject to certain exceptions, and upon a change of control.
In connection with the sale of the Notes, the Company entered into a Registration Rights Agreement dated as of May
9, 2013 (the "Registration Rights Agreement") with the Guarantors and the representative of the initial purchasers of the Notes
identified therein. Under the Registration Rights Agreement, the Company and the Guarantors have agreed to (i) file an
exchange offer registration statement to exchange the Notes for a new issue of debt securities registered under the Securities
Act of 1933, with terms substantially identical to those of the Notes (except that the exchange notes will not contain terms with
respect to additional interest, registration rights, or certain transfer restrictions); (ii) use their commercially reasonable efforts to
consummate the exchange offer within 365 days after the issue date of the Notes; and (iii) in certain circumstances, file a shelf
registration statement for the resale of the Notes. If the Company and the Guarantors fail to consummate the exchange offer
within 365 days of the issue date of the Notes or otherwise fail to satisfy their registration obligations under the Registration
Rights Agreement, then the annual interest rate on the Notes will increase by 0.25% per annum and by an additional 0.25% per
annum for each subsequent 90-day period during which the registration default continues, up to a maximum additional interest
rate of 1.0% per annum.
Fees incurred related to the offering of the Notes totaling $9.7 million were capitalized within Other Assets on our
Consolidated Balance Sheet and are amortized over the term of the Notes.
Receivables Securitization Facility
On September 28, 2012, we entered into a three year receivables securitization facility with BTMU as Administrative
Agent. Under the facility, LKQ sells an ownership interest in certain receivables, related collections and security interests to
BTMU for the benefit of conduit investors and/or financial institutions for up to $80 million in cash proceeds. Upon payment of
the receivables by customers, rather than remitting to BTMU the amounts collected, LKQ retains such collections as proceeds
for the sale of new receivables generated by certain of the ongoing operations of the Company.
The sale of the ownership interest in the receivables is accounted for as a secured borrowing in our Consolidated
Balance Sheets, under which the receivables included in the program collateralize the amounts invested by BTMU, the conduit
investors and/or financial institutions. The receivables are held by LKQ Receivables Finance Company, LLC ("LRFC"), a
wholly owned bankruptcy-remote special purpose subsidiary of LKQ, and therefore, the receivables are available first to satisfy
the creditors of LRFC, including the investors. As of December 31, 2012, $116.9 million of net Receivables were collateral for
the investment under the receivables facility. There were no borrowings outstanding under the receivables facility as of
December 31, 2013. In January 2014, we borrowed the maximum amount of $80 million in connection with our acquisition of
Keystone Automotive Holdings, Inc. (“Keystone Specialty”), as described in Note 8, "Business Combinations."
Under the receivables facility, we pay variable interest rates plus a margin on the outstanding amounts invested by the
Purchasers. The variable rates are based on (i) commercial paper rates, (ii) the London InterBank Offered Rate ("LIBOR") plus
1.25%, or (iii) base rates, and are payable monthly in arrears. Commercial paper rates will be the applicable variable rate unless
conduit investors are not available to invest in the receivables at commercial paper rates. In such case, financial institutions
will invest at the LIBOR rate plus 1.25% or at base rates. We also pay a commitment fee on the excess of the investment
maximum over the average daily outstanding investment, payable monthly in arrears. As of December 31, 2012, the interest
rate under the receivables facility was based on commercial paper rates and was 1.05%. During 2012, we also incurred $0.3
million of arrangement fees and other related transaction costs which were capitalized within Other Assets on the Consolidated
Balance Sheets and are amortized over the term of the facility. The outstanding balance of $80 million as of December 31, 2012
was classified as long-term on the Consolidated Balance Sheets because we have the ability and intent to refinance these
borrowings on a long-term basis.
Note 5. Derivative Instruments and Hedging Activities
We are exposed to market risks, including the effect of changes in interest rates, foreign currency exchange rates and
commodity prices. Under our current policies, we use derivatives to manage our exposure to variable interest rates on our
senior secured debt, changing foreign exchange rates for certain foreign currency denominated transactions and changes in
metals prices. We do not hold or issue derivatives for trading purposes.
62
Cash Flow Hedges
At December 31, 2013, we had interest rate swap agreements in place to hedge a portion of the variable interest rate
risk on our variable rate borrowings under our Credit Agreement, with the objective of minimizing the impact of interest rate
fluctuations and stabilizing cash flows. Under the terms of the interest rate swap agreements, we pay the fixed interest rate and
receive payment at a variable rate of interest based on LIBOR or the Canadian Dealer Offered Rate (“CDOR”) for the
respective currency of each interest rate swap agreement’s notional amount. The effective portion of changes in the fair value of
the interest rate swap agreements is recorded in Accumulated Other Comprehensive Income (Loss) and is reclassified to
interest expense when the underlying interest payment has an impact on earnings. The ineffective portion of changes in the fair
value of the interest rate swap agreements is reported in interest expense. Our interest rate swap contracts have maturity dates
ranging from 2015 through 2016.
We hold foreign currency forward contracts related to certain foreign currency denominated intercompany
transactions, with the objective of minimizing the impact of changing exchange rates on these future cash flows, as well as
minimizing the impact of fluctuating exchange rates on our results of operations through the respective dates of settlement.
Under the terms of the foreign currency forward contracts, we will sell euros and pounds sterling in exchange for U.S. dollars
at a fixed rate on the maturity dates of the contracts. The effective portion of the changes in fair value of the foreign currency
forward contracts is recorded in Accumulated Other Comprehensive Income (Loss) and reclassified to other income (expense)
when the underlying transaction has an impact on earnings. In January 2014, we settled our £70 million foreign currency
forward contract and the underlying intercompany transaction. Our €150 million forward contract also expires in 2014.
The following table summarizes the notional amounts and fair values of our designated cash flow hedges of
December 31, 2013 (in thousands):
Notional Amount
Fair Value at December 31, 2013
(USD)
Fair Value at December 31, 2012
(USD)
December 31,
2013
December 31,
2012
Other Accrued
Expenses
Other
Noncurrent
Liabilities
Other Accrued
Expenses
Other
Noncurrent
Liabilities
Interest rate swap agreements
USD denominated
GBP denominated
$
£
420,000
50,000
$
£
520,000
$
50,000
CAD denominated C$
25,000 C$
25,000
Foreign currency forward contracts
EUR denominated
149,976
GBP denominated
£
70,000
Total cash flow hedges
—
—
— $
8,099
$
705
$
12,791
—
—
11,632
10,186
345
26
—
—
—
—
—
—
$
21,818
$
8,470
$
705
$
2,135
12
—
—
14,938
While our derivative instruments executed with the same counterparty are subject to master netting arrangements, we
present our cash flow hedge derivative instruments on a gross basis in our Consolidated Balance Sheets. The impact of netting
the fair values of these contracts would not have a material effect on our Consolidated Balance Sheets at December 31, 2013 or
2012.
The activity related to our cash flow hedges is included in Note 12, "Accumulated Other Comprehensive Income
(Loss)." In May 2013, we repaid a portion of our variable rate U.S. dollar denominated credit agreement borrowings with the
proceeds of our fixed rate senior notes, which resulted in one of our interest rate swap contracts, which expired in October
2013, no longer being designated as an effective cash flow hedge. As a result, we experienced an immaterial amount of hedge
ineffectiveness during the year ended December 31, 2013. Hedge ineffectiveness related to our foreign currency forward
contracts was immaterial to our results of operations during 2013. We do not expect future ineffectiveness related to our cash
flow hedges to have a material effect on our results of operations.
As of December 31, 2013, we estimate that $4.0 million of derivative losses (net of tax) included in Accumulated
Other Comprehensive Income will be reclassified into our Consolidated Statements of Income within the next 12 months.
Other Derivative Instruments
We hold other short-term derivative instruments, including foreign currency forward contracts and commodity forward
contracts, to manage our exposure to variability related to purchases of inventory invoiced in a non-functional currency and to
metals prices in certain of our operations. We have elected not to apply hedge accounting for these transactions, and therefore
63
€
the contracts are adjusted to fair value through our results of operations as of each balance sheet date, which could result in
volatility in our earnings. The notional amount and fair value of these contracts at December 31, 2013 and 2012, along with the
effect on our results of operations in 2013 and 2012, were immaterial.
Note 6. Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value
We use the market and income approaches to value our financial assets and liabilities, and during the year ended
December 31, 2013, there were no significant changes in valuation techniques or inputs related to the financial assets or
liabilities that we have historically recorded at fair value. During the year ended December 31, 2013, we entered into several
foreign currency forward contracts as described in Note 5, "Derivative Instruments and Hedging Activities," which are recorded
at fair market value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring
an entity to develop its own assumptions.
The following tables present information about our financial assets and liabilities measured at fair value on a recurring
basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of December 31,
2013 and 2012 (in thousands):
Assets:
Cash surrender value of life insurance
Total Assets
Liabilities:
Contingent consideration liabilities
Deferred compensation liabilities
Foreign currency forward contracts
Interest rate swaps
Total Liabilities
Assets:
Cash surrender value of life insurance
Total Assets
Liabilities:
Contingent consideration liabilities
Deferred compensation liabilities
Interest rate swaps
Total Liabilities
Balance as of
December 31,
2013
Fair Value Measurements as of December 31, 2013
Level 1
Level 2
Level 3
$
$
$
$
$
$
25,745
25,745
55,653
25,232
21,818
8,470
— $
— $
25,745
25,745
$
$
—
—
— $
— $
55,653
—
—
25,232
21,818
8,470
—
—
$
111,173
$
— $
55,520
$
55,653
Balance as of
December 31,
2012
Fair Value Measurements as of December 31, 2012
Level 1
Level 2
Level 3
$
$
$
$
$
$
$
19,492
19,492
90,009
19,843
15,643
— $
— $
— $
—
—
19,492
19,492
$
$
— $
19,843
15,643
—
—
90,009
—
—
125,495
$
— $
35,486
$
90,009
The cash surrender value of life insurance and deferred compensation liabilities are included in Other Assets and Other
Noncurrent Liabilities, respectively, on our Consolidated Balance Sheets. The contingent consideration liabilities are classified
as separate line items in both current and noncurrent liabilities on our Consolidated Balance Sheets based on the expected
timing of the related payments. The balance sheet classification of the interest rate swaps and foreign currency forward
contracts is presented in Note 5, "Derivative Instruments and Hedging Activities."
Our Level 2 assets and liabilities are valued using inputs from third parties and market observable data. We obtain
valuation data for the cash surrender value of life insurance and deferred compensation liabilities from third party sources,
which determine the net asset values for our accounts using quoted market prices, investment allocations and reportable trades.
We value our derivative instruments using a third party valuation model that performs a discounted cash flow analysis based on
the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward
foreign exchange rates.
64
Our contingent consideration liabilities are related to our business acquisitions as further described in Note 8,
"Business Combinations." Under the terms of the contingent consideration agreements, payments may be made at specified
future dates depending on the performance of the acquired business subsequent to the acquisition. The liabilities for these
payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income
approach, includes significant inputs not observable in the market. These unobservable inputs include internally-developed
assumptions of the probabilities of achieving specified targets, which are used to determine the resulting cash flows and the
applicable discount rate. Our Level 3 fair value measurements are established and updated quarterly by our corporate
accounting department using current information about these key assumptions, with the input and oversight of our operational
and executive management teams. We evaluate the performance of the business during the period compared to our previous
expectations, along with any changes to our future projections, and update the estimated cash flows accordingly. In addition, we
consider changes to our cost of capital and changes to the probability of achieving the earnout payment targets when updating
our discount rate on a quarterly basis.
The significant unobservable inputs used in the fair value measurements of our Level 3 contingent consideration
liabilities were as follows:
Unobservable Input
Probability of achieving payout targets
Discount rate
December 31,
2013
2012
(Weighted Average)
70.6%
6.5%
79.7%
6.6%
A significant decrease in the assessed probabilities of achieving the targets or a significant increase in the discount
rate, in isolation, would result in a significantly lower fair value measurement. Changes in the values of the liabilities are
recorded in Change in Fair Value of Contingent Consideration Liabilities within Other Expense (Income) on our Consolidated
Statements of Income.
Changes in the fair value of our contingent consideration obligations are as follows (in thousands):
Balance as of January 1, 2012
$
82,382
Contingent consideration liabilities recorded for
business acquisitions
Payments
Increase in fair value included in earnings
Exchange rate effects
Balance as of December 31, 2012
Contingent consideration liabilities recorded for
business acquisitions
Payments
Increase in fair value included in earnings
Exchange rate effects
Balance as of December 31, 2013
$
$
5,456
(3,100)
1,643
3,628
90,009
3,854
(39,117)
2,504
(1,597)
55,653
The purchase price for our 2011 acquisition of Euro Car Parts Holdings Limited ("ECP") included contingent
payments depending on the achievement of certain annual performance targets in 2012 and 2013. The performance target for
2012 was exceeded, and during the three months ended March 31, 2013, we paid £25 million, the maximum contingent
payment, through a cash payment of $33.9 million (£22.4 million) and the issuance of notes for $3.9 million (£2.6 million). In
April 2013, we amended the ECP contingent payment agreement to waive the 2013 performance targets for the portion related
to Draco Limited, one of the sellers of ECP. As a result, we are obligated to pay Draco Limited approximately £27 million in
the first quarter of 2014, which is equal to the maximum payment for Draco Limited's share of the contingent payment
agreement for the 2013 performance period. The waiver of the 2013 performance targets did not have a material impact on our
financial position or results of operations, and it is not expected to have a material impact on our cash flows, as ECP exceeded
the stated performance targets for the 2013 performance period, and therefore, earned the maximum payment regardless of the
waiver.
During the years ended December 31, 2013 and 2012, the net losses included in earnings related to the remeasurement
of our contingent payment liabilities included $3.0 million and $2.6 million of losses, respectively, related to contingent
consideration obligations outstanding as of December 31, 2013. The changes in the fair value of contingent consideration
65
obligations during 2013 and 2012 are a result of the quarterly assessment of the fair value inputs. The loss during the year
ended December 31, 2012 also included the impact related to the adoption of FASB ASU No. 2011-04, "Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" (which adoption did not
have a material impact).
Financial Assets and Liabilities Not Measured at Fair Value
Our debt is reflected on the Consolidated Balance Sheets at cost. Based on market conditions as of December 31, 2013
and 2012, the fair value of our credit agreement borrowings reasonably approximated the carrying value of $673 million and
$975 million, respectively. In addition, based on market conditions, the fair value of the outstanding borrowings under the
receivables facility reasonably approximated the carrying value of $80 million at December 31, 2012; we did not have any
borrowings outstanding under the receivables facility as of December 31, 2013. As of December 31, 2013, the fair value of our
senior notes was approximately $561 million compared to a carrying value of $600 million.
The fair value measurements of the borrowings under our credit agreement and receivables facility are classified as
Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market,
including interest rates on recent financing transactions with similar terms and maturities. We estimated the fair value by
calculating the upfront cash payment a market participant would require at December 31, 2013 to assume these obligations. The
fair value of our senior notes, which is determined using quoted market prices in the secondary market, is also classified as
Level 2 within the fair value hierarchy because the market for these financial instruments is not considered an active market.
Note 7. Commitments and Contingencies
Operating Leases
We are obligated under noncancelable operating leases for corporate office space, warehouse and distribution
facilities, trucks and certain equipment.
The future minimum lease commitments under these leases at December 31, 2013 are as follows (in thousands):
Years ending December 31:
2014
2015
2016
2017
2018
Thereafter
Future Minimum Lease Payments
$
$
114,405
103,038
85,821
68,173
54,550
220,358
646,345
Rental expense for operating leases was approximately $122.4 million, $101.1 million and $83.7 million during the
years ended December 31, 2013, 2012 and 2011, respectively.
We guarantee the residual values of the majority of our truck and equipment operating leases. The residual values
decline over the lease terms to a defined percentage of original cost. In the event the lessor does not realize the residual value
when a piece of equipment is sold, we would be responsible for a portion of the shortfall. Similarly, if the lessor realizes more
than the residual value when a piece of equipment is sold, we would be paid the amount realized over the residual value. Had
we terminated all of our operating leases subject to these guarantees at December 31, 2013, our portion of the guaranteed
residual value would have totaled approximately $24.6 million. We have not recorded a liability for the guaranteed residual
value of equipment under operating leases as the recovery on disposition of the equipment under the leases is expected to
approximate the guaranteed residual value.
Litigation and Related Contingencies
We are a plaintiff in a class action lawsuit against several aftermarket product suppliers. During 2012, we recognized
gains totaling $17.9 million resulting from settlements with certain of the defendants. These gains were recorded as a reduction
of Cost of Goods Sold on our Consolidated Statements of Income. The class action is still pending against two defendants, the
results of which are not expected to be material to our results of operations or cash flows.
We also have certain contingencies resulting from litigation, claims and other commitments and are subject to a
variety of environmental and pollution control laws and regulations incident to the ordinary course of business. We currently
66
expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash
flows.
Note 8. Business Combinations
On May 1, 2013, we acquired the shares of Sator, a vehicle mechanical aftermarket parts distribution company based
in the Netherlands, with operations in the Netherlands, Belgium and Northern France. With the acquisition of Sator, we
expanded our geographic presence in the European vehicle mechanical aftermarket products market into continental Europe to
complement our existing U.K. operations. Total acquisition date fair value of the consideration for the acquisition of Sator was
€209.8 million ($272.8 million) of cash, net of cash acquired. We recorded $142.7 million of goodwill related to our acquisition
of Sator, which we do not expect will be deductible for income tax purposes. In the period between May 1, 2013 and
December 31, 2013, Sator generated approximately $265.1 million of revenue and $7.3 million of net income.
In addition to our acquisition of Sator, we made 19 acquisitions during 2013, including 10 wholesale businesses in
North America, 7 wholesale businesses in Europe and 2 self service retail operations. Our European acquisitions included five
automotive paint distribution businesses in the U.K., which enabled us to expand our collision product offerings. Our other
acquisitions completed during 2013 enabled us to expand into new product lines and enter new markets. Total acquisition date
fair value of the consideration for these additional 2013 acquisitions was $146.1 million, composed of $134.6 million of cash
(net of cash acquired), $7.5 million of notes payable, $0.2 million of other purchase price obligations (non-interest bearing) and
$3.9 million for the estimated value of contingent payments to former owners (with maximum potential payments totaling $5.0
million). During the year ended December 31, 2013, we recorded $92.7 million of goodwill related to these acquisitions and
immaterial adjustments to preliminary purchase price allocations related to certain of our 2012 acquisitions. We expect $18.3
million of the $92.7 million of goodwill recorded to be deductible for income tax purposes. In the period between the
acquisition dates and December 31, 2013, these acquisitions generated $108.5 million of revenue and $3.7 million of net
income.
On January 3, 2014, we completed our acquisition of Keystone Automotive Holdings, Inc. (“Keystone Specialty”) for
a purchase price of $455.4 million, net of cash acquired. Keystone Specialty is a leading distributor and marketer of specialty
aftermarket equipment and accessories in North America serving the following six product segments: truck and off-road; speed
and performance; recreational vehicle; towing; wheels, tires and performance handling; and miscellaneous accessories. The
purchase price is subject to certain adjustments, including an adjustment related to the net working capital amount of Keystone
Specialty at closing. Our acquisition of Keystone Specialty allows us to enter into new product lines and increase the size of
our addressable market. In addition, we believe that the acquisition creates potential logistics and administrative cost synergies
and cross-selling opportunities.
Also in January 2014, we completed the acquisition of a U.S. based distributor of automotive cores as well as new and
remanufactured mechanical automotive replacement parts. We believe this acquisition will expand our core and
remanufactured product mix, and will allow us to expand our product offering to include certain parts also purchased by OEMs.
In February 2014, we acquired a wholesale salvage operation and a self service operation in North America, which we believe
will expand our market share in the respective markets.
We are in the process of completing the purchase accounting for our 2014 acquisitions, and as a result, we are unable
to disclose the amounts recognized for each major class of assets acquired and liabilities assumed, or the pro forma effect of the
acquisitions on our results of operations.
During the year ended December 31, 2012, we made 30 acquisitions in North America, including 22 wholesale
businesses and 8 self service retail operations. These acquisitions enabled us to expand our geographic presence and enter new
markets. Additionally, two of our acquisitions were completed with a goal of improving the recovery from scrap and other
metals harvested from the vehicles we purchase: a precious metals refining and reclamation business and a scrap metal
shredder. Total acquisition date fair value of the consideration for the 2012 acquisitions was $284.6 million, composed of
$261.5 million of cash (net of cash acquired), $16.0 million of notes payable, $1.6 million of other purchase price obligations
(non-interest bearing) and $5.5 million of contingent payments to former owners. The contingent consideration arrangements
made in connection with our 2012 acquisitions have maximum potential payouts totaling $6.5 million. During the year ended
December 31, 2012, we recorded $197.6 million of goodwill related to these acquisitions and immaterial adjustments to
preliminary purchase price allocations related to certain of our 2011 acquisitions. We expect $157.8 million of the $197.6
million of goodwill recorded to be deductible for income tax purposes.
In October 2011, we expanded our operations into the European automotive aftermarket business through our
acquisition of ECP. ECP's product offerings are primarily focused on automotive aftermarket mechanical products, many of
which are sourced from the same suppliers that provide products to the OEMs. Total acquisition date fair value of the
consideration for the ECP acquisition was £261.6 million ($403.7 million), composed of £190.3 million ($293.7 million) of
cash (net of cash acquired), £18.4 million ($28.3 million) of notes payable, £2.7 million ($4.1 million) of other purchase price
67
obligations (non-interest bearing) and contingent payments of up to £55 million to the former owners of ECP if certain
performance targets were met in the years ended December 31, 2013 and 2012. We determined the acquisition date fair value of
these contingent payments to be £50.2 million ($77.5 million at the exchange rate on October 3, 2011). As discussed in Note 6,
"Fair Value Measurements," we made the full payment related to the 2012 performance period, and in the first quarter of 2014,
we will make the full payment related to the 2013 performance period. We recorded goodwill of $332.9 million for the ECP
acquisition, which will not be deductible for income tax purposes.
In addition to our acquisition of ECP, we completed 20 acquisitions in North America in 2011 (17 wholesale
businesses and 3 self service retail operations), which allowed us to increase our product offerings, to expand our geographic
presence and enter new markets. Total acquisition date fair value of the consideration for these 20 acquisitions was $207.3
million, composed of $193.2 million of cash (net of cash acquired), $5.9 million of notes payable, $4.5 million of other
purchase price obligations (non-interest bearing) and $3.7 million of contingent payments to former owners. During the year
ended December 31, 2011, we recorded $105.2 million of goodwill related to these 20 acquisitions and immaterial adjustments
to preliminary purchase price allocations related to certain of our 2010 acquisitions. Of this amount, approximately $88.3
million is expected to be deductible for income tax purposes.
Our acquisitions are accounted for under the purchase method of accounting and are included in our consolidated
financial statements from the dates of acquisition. The purchase prices were allocated to the net assets acquired based upon
estimated fair market values at the dates of acquisition. In connection with the 2013 acquisitions, the purchase price allocations
are preliminary as we are in the process of determining the following: 1) valuation amounts for certain receivables, inventories
and fixed assets acquired; 2) valuation amounts for certain intangible assets acquired; 3) the acquisition date fair value of
certain liabilities assumed; and 4) the final estimation of the tax basis of the entities acquired. We have recorded preliminary
estimates for certain of the items noted above and will record adjustments, if any, to the preliminary amounts upon finalization
of the valuations.
The purchase price allocations for the acquisitions completed during 2013 and 2012 are as follows (in thousands):
Receivables
Receivable reserves
Inventory
Prepaid expenses and other current assets
Property and equipment
$
Goodwill
Other intangibles
Other assets
Deferred income taxes
Current liabilities assumed
Debt assumed
Other noncurrent liabilities assumed
Contingent consideration liabilities
Other purchase price obligations
Notes issued
Cash used in acquisitions, net of cash acquired $
Year Ended December 31, 2013
Sator
(Preliminary)
Other
Acquisitions
Year Ended
December 31,
2012
Total
$
61,639
(8,563)
71,784
7,184
19,484
142,721
45,293
2,049
(14,100)
(49,593)
—
(5,074)
—
—
—
272,824
$
38,685
(3,246)
26,455
1,933
14,015
92,726
12,353
1,251
(564)
(36,799)
(664)
—
(3,854)
(214)
(7,482)
134,595
$
$
100,324
(11,809)
98,239
9,117
33,499
235,447
57,646
3,300
(14,664)
(86,392)
(664)
(5,074)
(3,854)
(214)
(7,482)
407,419
$
$
15,473
(1,459)
62,305
201
31,930
201,742
655
187
428
(22,910)
(3,989)
—
(5,456)
(1,647)
(15,990)
261,470
Included in other noncurrent liabilities recorded for our Sator acquisition is a liability for certain pension and other
post-retirement obligations we assumed with the acquisition. Due to the immateriality of these plans, we have not provided the
detailed disclosures otherwise prescribed by the accounting guidance on pensions and other post-retirement obligations.
The primary reason for our acquisitions made in 2013, 2012 and 2011 was to leverage our strategy of becoming a one-
stop provider for alternative vehicle replacement products. These acquisitions enabled us to enter new markets, including our
entry into the European automotive market beginning in 2011 with our purchase of ECP. Our acquisition of ECP provides an
opportunity to us as the European automotive market has historically had a low penetration of alternative collision parts. By
acquiring ECP, a leading distributor of alternative automotive products, we were able to gain access to the European market in
68
a manner that we viewed as quicker and more cost effective than would have been achievable through a start-up organization
and organic growth. The potential growth opportunities, combined with the developed distribution network, experienced
management team and established workforce, contributed to the $332.9 million of goodwill recognized related to this
acquisition. Our subsequent acquisitions in Europe have allowed us to further expand our market presence in this segment,
including continental Europe through the Sator acquisition, as well as to widen our product offerings such as paint and related
equipment in the U.K. We believe that our Sator acquisition will allow for synergies within our European operations, most
notably in procurement, warehousing and product management. These projected synergies contributed to the goodwill recorded
on the Sator acquisition.
When we identify potential acquisitions, we attempt to target companies with a leading market share, an experienced
management team and workforce that provide a fit with our existing operations and strong cash flows. For certain of our
acquisitions, we have identified cost savings and synergies as a result of integrating the company with our existing business that
provide additional value to the combined entity. In many cases, acquiring companies with these characteristics can result in
purchase prices that include a significant amount of goodwill.
The following pro forma summary presents the effect of the businesses acquired during the year ended December 31,
2013 as though the businesses had been acquired as of January 1, 2012, the businesses acquired during the year ended
December 31, 2012 as though they had been acquired as of January 1, 2011 and the businesses acquired during the year ended
December 31, 2011 as though they had been acquired as of January 1, 2010. The pro forma adjustments are based upon
unaudited financial information of the acquired entities (in thousands, except per share data):
Revenue, as reported
Revenue of purchased businesses for the period prior to acquisition:
Sator
ECP
Other acquisitions
Pro forma revenue
Net income, as reported
Net income of purchased businesses for the period prior to acquisition,
including pro forma purchase accounting adjustments:
Sator
ECP
Other acquisitions
Pro forma net income
Earnings per share-basic, as reported
Effect of purchased businesses for the period prior to acquisition:
Sator
ECP
Other acquisitions
Pro forma earnings per share-basic (a)
Earnings per share-diluted, as reported
Effect of purchased businesses for the period prior to acquisition:
Sator
ECP
Other acquisitions
Pro forma earnings per share-diluted (a)
Year Ended December 31,
2013
2012
2011
$ 5,062,528
$ 4,122,930
$ 3,269,862
126,309
369,934
—
—
130,093
440,938
—
407,042
466,002
$ 5,318,930
$ 4,933,802
$ 4,142,906
$
311,623
$
261,225
$
210,264
5,293
—
7,591
324,507
1.04
$
$
6,032
—
18,363
285,620
0.88
0.02
—
0.03
1.08
1.02
0.02
—
0.02
1.07
$
$
$
0.02
—
0.06
0.97
0.87
0.02
—
0.06
0.95
—
21,858
27,396
259,518
0.72
—
0.07
0.09
0.89
0.71
—
0.07
0.09
0.87
$
$
$
$
$
$
$
$
$
$
(a) The sum of the individual earnings per share amounts may not equal the total due to rounding.
Unaudited pro forma supplemental information is based upon accounting estimates and judgments that we believe are
reasonable. The unaudited pro forma supplemental information includes the effect of purchase accounting adjustments, such as
69
the adjustment of inventory acquired to net realizable value, adjustments to depreciation on acquired property and equipment,
adjustments to rent expense for above or below market leases, adjustments to amortization on acquired intangible assets,
adjustments to interest expense, and the related tax effects. The pro forma impact of our Sator acquisition reflects the
elimination of acquisition related expenses totaling $3.6 million for the year ended December 31, 2013, which do not have a
continuing impact on our operating results. Additionally, the pro-forma impact of our other acquisitions reflects the elimination
of acquisition related expenses totaling $2.2 million and $0.5 million for the years ended December 31, 2013 and 2012,
respectively. Refer to Note 9, "Restructuring and Acquisition Related Expenses," for further information on our acquisition
related expenses. These pro forma results are not necessarily indicative either of what would have occurred if the acquisitions
had been in effect for the periods presented or of future results.
Note 9. Restructuring and Acquisition Related Expenses
Acquisition Related Expenses
Acquisition related expenses, which include external costs such as advisory, legal and accounting fees, totaled $6.7
million, $0.5 million, and $3.2 million for the years ended December 31, 2013, 2012 and 2011, respectively. Our 2013 expenses
included $3.6 million related to our acquisition of Sator in May 2013, $1.4 million related to our acquisitions of five U.K.-
based paint distribution businesses, and $0.9 million related to our acquisition of Keystone Specialty in January 2014. Our 2011
acquisition related expenses were primarily related to our acquisition of ECP. These costs are expensed as incurred.
Acquisition Integration Plans
During the year ended December 31, 2013, we incurred $2.1 million of restructuring expenses related to the
integration of certain of our 2013 European acquisitions. These integration activities included the closure of duplicate facilities,
termination of employees in connection with the consolidation of overlapping facilities with our existing business, and moving
expenses. Future expenses to complete these integration plans in the first half of 2014, including expenses for additional
closures of overlapping facilities and termination of duplicate headcount, are not expected to exceed $1 million.
Also during 2013, we incurred $1.4 million of restructuring expenses related to the integration of certain of our 2012
North American acquisitions. Our integration activities included the closure of duplicate facilities, termination of employees in
connection with the consolidation of overlapping facilities with our existing business, moving expenses, and other third party
services directly related to the integration of these acquisitions. Remaining costs to complete these integration activities are
expected to be immaterial.
Integration costs during the years ended December 31, 2012 and 2011 totaled $1.2 million and $4.4 million,
respectively. Of the expenses incurred in 2011, $2.6 million related to restructuring activities to integrate the Akzo Nobel
acquired paint distribution locations into our existing business, including primarily charges for excess facility costs, which were
expensed at the cease-use date for the facilities. Our restructuring plan included the closure of duplicate facilities, elimination
of overlapping delivery routes and termination of employees in connection with the consolidation of the overlapping facilities
and delivery routes. We substantially completed the integration activities related to the Akzo Nobel paint business acquisition
as of December 31, 2011.
Refurbished Bumper and Wheel Restructuring
In the second quarter of 2012, we initiated a restructuring plan to improve the operational efficiency of our refurbished
product operations and to reduce the cost structure of the related refurbished bumper and wheel product lines. As part of the
restructuring plan, we consolidated certain of our bumper and wheel refurbishing operations, with a focus on increasing output
at the remaining operations to improve economies of scale. Restructuring costs included the write off of disposed assets,
severance costs for termination of overlapping headcount, costs to move equipment and inventory, and excess facility costs.
These costs are expensed as incurred, when the costs meet the criteria to be accrued, or, in the case of non-performing lease
reserves, at the cease-use date of the facility. During the year ended December 31, 2012, we incurred $1.1 million of expense
related to this restructuring plan. These restructuring activities were substantially completed in 2012.
Note 10. Earnings Per Share
Basic earnings per share are computed using the weighted average number of common shares outstanding during the
period. Diluted earnings per share incorporate the incremental shares issuable upon the assumed exercise of stock options and
the assumed vesting of RSUs and restricted stock. Certain of our stock options were excluded from the calculation of diluted
earnings per share because they were antidilutive, but these equity instruments could be dilutive in the future.
70
The following chart sets forth the computation of earnings per share (in thousands, except per share amounts):
Net Income
Denominator for basic earnings per share—Weighted-average shares
outstanding
Effect of dilutive securities:
RSUs
Stock options
Restricted stock
Denominator for diluted earnings per share—Adjusted weighted-average
shares outstanding
Earnings per share, basic
Earnings per share, diluted
Year Ended December 31,
2013
2012
2011
$
311,623
$
261,225
$
210,264
299,574
295,810
292,252
845
3,696
16
479
4,346
58
182
4,250
66
304,131
300,693
296,750
$
$
1.04
1.02
$
$
0.88
0.87
$
$
0.72
0.71
The following table sets forth the number of employee stock-based compensation awards outstanding but not included
in the computation of diluted earnings per share because their effect would have been antidilutive (in thousands):
Antidilutive securities:
Stock options
Note 11.
Income Taxes
Year Ended December 31,
2013
2012
2011
—
—
2,340
The provision for income taxes consists of the following components (in thousands):
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Provision for income taxes
Year Ended December 31,
2013
2012
2011
$
$
$
$
$
115,150
$
110,825
$
20,869
23,906
159,925
6,225
(550)
(1,396)
4,279
164,204
$
$
$
$
19,693
13,202
143,720
5,824
(647)
(955)
4,222
147,942
$
$
$
$
97,887
14,435
3,883
116,205
8,376
919
7
9,302
125,507
Income taxes have been based on the following components of income before provision for income taxes (in
thousands):
Domestic
Foreign
Year Ended December 31,
2013
2012
2011
$
$
361,283
114,544
475,827
$
$
348,150
61,017
409,167
$
$
319,305
16,466
335,771
71
The U.S. federal statutory rate is reconciled to the effective tax rate as follows:
U.S. federal statutory rate
State income taxes, net of state credits and federal tax impact
Impact of international operations
Non-deductible expenses
Federal production incentives and credits
Revaluation of deferred taxes
Other, net
Effective tax rate
Year Ended December 31,
2013
2012
2011
35.0 %
2.9 %
(3.7)%
0.9 %
(0.3)%
(0.3)%
0.0 %
34.5 %
35.0 %
3.1 %
(2.3)%
0.8 %
(0.3)%
(0.3)%
0.2 %
36.2 %
35.0 %
3.1 %
(0.8)%
0.7 %
(0.4)%
— %
(0.2)%
37.4 %
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $166 million at
December 31, 2013. Those earnings are considered to be indefinitely reinvested, and accordingly no provision for U.S. income
taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company
would be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and potential withholding taxes
payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not
practicable due to the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits
would be available to reduce materially any U.S. liability.
The greater impact of international operations in 2013 compared to 2012 is primarily a result of our expanding
international operations as a larger proportion of our pretax income was generated in lower rate jurisdictions.
The significant components of our deferred tax assets and liabilities are as follows (in thousands):
December 31,
2013
2012
Deferred Tax Assets:
Inventory
Accrued expenses and reserves
Stock-based compensation
Accounts receivable
Qualified and nonqualified retirement plans
Net operating loss carryforwards
Interest rate swaps
Other
Less valuation allowance
Total deferred tax assets
Deferred Tax Liabilities:
Goodwill and other intangible assets
Property and equipment
Trade name
Other
Total deferred tax liabilities
Net deferred tax liability
$
30,880
$
29,970
11,519
11,161
10,210
5,181
3,070
4,777
106,768
(1,092)
105,676
83,097
50,695
40,929
2,693
$
$
29,523
27,361
9,442
10,037
7,476
4,451
5,461
4,711
98,462
(1,631)
96,831
64,704
48,994
30,336
1,428
177,414
$
(71,738) $
145,462
(48,631)
$
$
$
$
72
Deferred tax assets and liabilities are reflected on our Consolidated Balance Sheets as follows (in thousands):
Current deferred tax assets
Noncurrent deferred tax assets
Current deferred tax liabilities
Noncurrent deferred tax liabilities
December 31,
2013
2012
$
63,938
$
53,485
1,501
3,355
164
5
133,822
102,275
Our noncurrent deferred tax assets and current deferred tax liabilities are included in Other Assets and Other Current
Liabilities, respectively, on our Consolidated Balance Sheets.
We had net operating loss carryforwards for federal and certain of our state tax jurisdictions, the tax benefits of which
total approximately $5.1 million and $4.5 million at December 31, 2013 and 2012, respectively. At December 31, 2013 and
2012, we had tax credit carryforwards of $1.1 million and $1.0 million, respectively, primarily related to certain of our state tax
jurisdictions. As of December 31, 2013 and 2012, a valuation allowance of $1.1 million and $1.6 million, respectively, was
recognized for a portion of the deferred tax assets related to net operating loss and tax credit carryforwards. The valuation
allowance for net operating loss and tax credit carryforwards decreased by $0.5 million during the year ended December 31,
2013 due to current utilization of some of the underlying tax benefits as well as a change in judgment regarding the realization
of the remaining carryforwards. The net operating loss carryforwards expire over the period from 2014 through 2031, while
nearly all of the tax credit carryforwards have no expiration. Realization of these deferred tax assets is dependent on the
generation of sufficient taxable income prior to the expiration dates. Based on historical and projected operating results, we
believe that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation
allowances have not been provided. While we expect to realize the deferred tax assets, net of valuation allowances, changes in
estimates of future taxable income or in tax laws may alter this expectation.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
2013
2012
2011
Balance at January 1
$
2,303
$
5,497
$
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statutes of limitations
Settlements with taxing authorities
Balance at December 31
348
62
—
(872)
—
$
1,841
$
973
167
(2,379)
(998)
(957)
2,303
$
5,441
952
192
—
(892)
(196)
5,497
At December 31, 2013 and 2012, we had accumulated interest and penalties included in gross unrecognized tax
benefits of $0.4 million and $0.6 million, respectively. During the years ended December 31, 2013, 2012, and 2011, $0.1
million, $0.2 million and $0.2 million, respectively, of interest and penalties were recorded through the income tax provision,
prior to any reversals for lapses in the statutes of limitations. We had deferred tax assets of $0.1 million related to the
accumulated interest balance as of both December 31, 2013 and 2012. The amount of the unrecognized tax benefits, which if
resolved favorably (in whole or in part) would reduce our effective tax rate, is approximately $1.3 million and $1.6 million at
December 31, 2013 and 2012, respectively. The balance of unrecognized tax benefits at December 31, 2013 and 2012 also
includes $0.6 million and $0.7 million, respectively, of tax benefits that, if recognized, would result in adjustments to deferred
taxes.
During the twelve months beginning January 1, 2014, it is reasonably possible that we will reduce gross unrecognized
tax benefits by up to approximately $0.2 million, of which approximately $0.1 million would impact our effective tax rate,
primarily as a result of the expiration of certain statutes of limitations.
We are generally no longer subject to examination in our primary tax jurisdictions for tax years through 2009. In the
U.S., the Internal Revenue Service has commenced an examination of our U.S. federal consolidated tax returns for 2011 and
2012. For certain of our Canadian subsidiaries, tax years from 2009 to 2012 are under examination. Adjustments from such
examinations, if any, are not expected to have a material effect on our consolidated financial statements.
73
Note 12. Accumulated Other Comprehensive Income (Loss)
The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands):
Foreign
Currency
Translation
Unrealized Gain
(Loss)
on Cash Flow
Hedges
Unrealized Gain
on Pension Plan
Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2011
Pretax loss
Income tax effect
Reclassification of unrealized loss
Reclassification of deferred income taxes
Hedge ineffectiveness
Income tax effect
Balance at December 31, 2011
Pretax income (loss)
Income tax effect
Reclassification of unrealized loss
Reclassification of deferred income taxes
Balance at December 31, 2012
Pretax income (loss)
Income tax effect
Reclassification of unrealized loss
Reclassification of deferred income taxes
Hedge ineffectiveness
Income tax effect
$
$
$
2,202
(4,273)
—
—
—
—
—
(2,071) $
12,921
—
—
—
$
10,850
$
14,056
—
—
—
—
—
Balance at December 31, 2013
$
24,906
$
$
2,176
(19,391)
6,847
5,641
(2,019)
(225)
81
(6,890) $
(11,313)
3,962
6,439
(2,289)
(10,091) $
(21,250)
7,984
27,481
(10,011)
460
(169)
(5,596) $
— $
—
—
—
—
—
—
— $
—
—
—
—
— $
935
(234)
—
—
—
—
701
$
4,378
(23,664)
6,847
5,641
(2,019)
(225)
81
(8,961)
1,608
3,962
6,439
(2,289)
759
(6,259)
7,750
27,481
(10,011)
460
(169)
20,011
Unrealized losses on our foreign currency forward contracts totaling $21.3 million were reclassified to other expense
in our Consolidated Statements of Income during the year ended December 31, 2013. These losses offset the remeasurement of
certain of our intercompany balances as discussed in Note 5, "Derivative Instruments and Hedging Activities." The remaining
reclassification of unrealized losses related to our interest rate swap contracts and was recorded to interest expense in our
Consolidated Statements of Income. The deferred income taxes related to our cash flow hedges were reclassified from
Accumulated Other Comprehensive Income to income tax expense.
Note 13. Segment and Geographic Information
We have three operating segments: Wholesale – North America; Wholesale – Europe; and Self Service. Our operations
in North America, which include our Wholesale – North America and Self Service operating segments, are aggregated into one
reportable segment because they possess similar economic characteristics and have common products and services, customers,
and methods of distribution. Our Wholesale – Europe operating segment is presented as a separate reportable segment.
Therefore, we present our reportable segments on a geographic basis.
74
The following table presents our financial performance, including revenue, earnings before interest, taxes,
depreciation and amortization (“EBITDA”), and depreciation and amortization by reportable segment for the periods indicated
(in thousands):
Revenue
North America
Europe
Total revenue
EBITDA
North America
Europe
Total EBITDA
Depreciation and Amortization
North America
Europe
Total depreciation and amortization
Year Ended December 31,
2013
2012
2011
$
$
$
$
$
$
3,802,929
1,259,599
5,062,528
484,824
131,086
615,910
65,606
20,857
86,463
$
$
$
$
$
$
3,426,858
696,072
4,122,930
440,448
70,099
510,547
59,132
11,033
70,165
$
$
$
$
$
$
3,131,376
138,486
3,269,862
405,924
12,144
418,068
52,481
2,024
54,505
EBITDA for our North American segment included gains of $17.9 million during the year ended 2012 resulting from
lawsuit settlements with certain of our aftermarket product suppliers as discussed in Note 7, "Commitments and
Contingencies." EBITDA for our North American segment also includes net gains of $0.7 million, $2.0 million and $2.0
million in each of the years ended December 31, 2013, 2012 and 2011 from the change in fair value of contingent consideration
liabilities related to certain of our acquisitions. During the years ended December 31, 2013, 2012 and 2011, our European
segment recognized losses of $3.2 million, $3.6 million and $0.6 million, respectively, related to the remeasurement of these
contingent consideration liabilities. See Note 6, "Fair Value Measurements," for further information on our changes in fair
value of the contingent consideration liabilities. For the year ended December 31, 2013, EBITDA for our European segment
also included restructuring and acquisition related expenses of $7.4 million, primarily related to our acquisition of Sator and
five automotive paint distribution businesses in the U.K.
The table below provides a reconciliation from EBITDA to Net Income (in thousands):
EBITDA
Depreciation and amortization
Interest expense, net
Loss on debt extinguishment
Provision for income taxes
Net income
Year Ended December 31,
2013
2012
2011
$
615,910
$
510,547
$
418,068
86,463
50,825
2,795
164,204
70,165
31,215
—
147,942
$
311,623
$
261,225
$
54,505
22,447
5,345
125,507
210,264
The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief
Executive Officer, is EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment.
Corporate and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based
on the segment’s percentage of consolidated revenue. Segment EBITDA excludes depreciation, amortization, interest and taxes.
Loss on debt extinguishment is considered a component of interest in calculating EBITDA, as the write-off of debt issuance
costs is similar to the treatment of debt issuance cost amortization.
75
The following table presents capital expenditures, which includes additions to property and equipment, by reportable
segment (in thousands):
Capital Expenditures
North America
Europe
Year Ended December 31,
2013
2012
2011
$
$
66,288
23,898
90,186
$
$
73,331
14,924
88,255
$
$
84,856
1,560
86,416
The following table presents assets by reportable segment (in thousands):
Receivables, net
North America
Europe
Total receivables, net
Inventory
North America
Europe
Total inventory
Property and Equipment, net
North America
Europe
Total property and equipment, net
Other unallocated assets
Total assets
December 31,
2013
2012
2011
$
277,395
$
241,627
$
230,871
180,699
458,094
748,167
328,785
1,076,952
447,528
99,123
546,651
70,181
311,808
750,565
150,238
900,803
434,010
60,369
494,379
50,893
281,764
636,145
100,701
736,846
380,282
43,816
424,098
2,437,077
2,016,466
1,756,996
$
4,518,774
$
3,723,456
$
3,199,704
We report net trade receivables, inventories, and net property and equipment by segment as that information is used by
the chief operating decision maker in assessing segment performance. These assets provide a measure for the operating capital
employed in each segment. Unallocated assets include cash, prepaid and other current and noncurrent assets, goodwill,
intangibles and income taxes.
Our operations are primarily conducted in the U.S. Our European operations are located in the U.K., the Netherlands,
Belgium and France. Our operations in other countries include recycled and aftermarket operations in Canada, engine
remanufacturing and bumper refurbishing operations in Mexico, an aftermarket parts freight consolidation warehouse in
Taiwan, and other alternative parts operations in Guatemala and Costa Rica. Our revenue is attributed to geographic area based
on the location of the selling operation.
The following table sets forth our revenue by geographic area (in thousands):
Revenue
United States
United Kingdom
Other countries
Year Ended December 31,
2013
2012
2011
$
3,544,360
$
3,209,024
$
2,952,620
981,585
536,583
696,072
217,834
138,486
178,756
$
5,062,528
$
4,122,930
$
3,269,862
76
The following table sets forth our tangible long-lived assets by geographic area (in thousands):
Long-lived Assets
United States
United Kingdom
Other countries
December 31,
2013
2012
$
$
418,869
$
408,244
77,827
49,955
60,369
25,766
546,651
$
494,379
The following table sets forth our revenue by product category (in thousands):
Aftermarket, other new and refurbished products
$ 3,034,599
$ 2,286,853
$ 1,634,003
Recycled, remanufactured and related products and services
1,394,981
1,277,023
1,115,088
Other
632,948
559,054
520,771
$ 5,062,528
$ 4,122,930
$ 3,269,862
Year Ended December 31,
2013
2012
2011
Our North American reportable segment generates revenue from all of our product categories, while our European
segment generates revenue primarily from the sale of aftermarket products. Revenue from other sources includes scrap sales,
bulk sales to mechanical remanufacturers (including cores) and sales of aluminum ingots and sows from our furnace
operations.
Note 14. Selected Quarterly Data (unaudited)
The following table presents unaudited selected quarterly financial data for the two years ended December 31, 2013.
Beginning with the quarter ended June 30, 2013, the selected quarterly financial data includes the results of Sator, which was
acquired effective May 1, 2013. The operating results for any quarter are not necessarily indicative of the results for any future
period.
(In thousands, except per share data)
2012
Revenue
Gross margin(1)
Operating income(1)
Net income(2)
Basic earnings per share(3)
Diluted earnings per share(3)
Mar. 31
Jun. 30
Sep. 30
Dec. 31
Quarter Ended
$ 1,031,777
$ 1,006,531
$ 1,016,707
$ 1,067,915
447,383
133,608
80,991
421,931
108,567
63,998
409,705
91,434
54,048
$
$
0.28
0.27
$
$
0.22
0.21
$
$
0.18
0.18
$
$
445,121
104,344
62,188
0.21
0.21
77
(In thousands, except per share data)
2013
Revenue
Gross margin
Operating income
Net income(2)
Basic earnings per share(3)
Diluted earnings per share(3)
Mar. 31
Jun. 30
Sep. 30
Dec. 31
Quarter Ended
$ 1,195,997
$ 1,251,748
$ 1,298,094
$ 1,316,689
501,949
141,588
84,592
509,873
131,378
75,722
517,907
123,395
73,445
$
$
0.28
0.28
$
$
0.25
0.25
$
$
0.24
0.24
$
$
545,673
133,819
77,864
0.26
0.26
(1)
(2)
Gross margin and operating income during the quarters ended March 31, 2012, June 30, 2012, September 30, 2012
and December 31, 2012 include gains of $8.3 million, $8.4 million, $0.5 million and $0.7 million, respectively,
resulting from lawsuit settlements with certain of our aftermarket product suppliers as discussed in Note 7,
"Commitments and Contingencies."
Net income during the quarters ended March 31, 2012 and December 31, 2012 include gains for changes in fair value
of our contingent consideration liabilities of $1.3 million and $0.2 million, respectively, while the quarters ended June
30, 2012 and September 30, 2012 include losses of $1.2 million and $1.9 million, respectively. The quarters ended
March 31, 2013, June 30, 2013, September 30, 2013 and December 31, 2013 include losses for changes in fair value
of our contingent consideration liabilities of $0.8 million, $0.2 million, $0.7 million and $0.8 million, respectively.
See Note 6, "Fair Value Measurements," for further information on these changes in fair value of the contingent
consideration obligations recorded in earnings during the periods.
(3)
The sum of the quarters may not equal the total of the respective year's earnings per share on either a basic or diluted
basis due to changes in weighted average shares outstanding throughout the year.
78
Note 15. Condensed Consolidating Financial Information
LKQ Corporation (the "Parent") issued, and certain of its 100% owned subsidiaries (the "Guarantors") have fully and
unconditionally guaranteed, jointly and severally, the Company's Notes due on May 15, 2023. A Guarantor's guarantee will be
unconditionally and automatically released and discharged upon the occurrence of any of the following events: (i) a transfer
(including as a result of consolidation or merger) by the Guarantor to any person that is not a Guarantor of all or substantially
all assets and properties of such Guarantor, provided the Guarantor is also released from its obligations with respect to
indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the
Notes; (ii) a transfer (including as a result of consolidation or merger) to any person that is not a Guarantor of the equity
interests of a Guarantor or issuance by a Guarantor of its equity interests such that the Guarantor ceases to be a subsidiary, as
defined in the Indenture, provided the Guarantor is also released from its obligations with respect to indebtedness under the
Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the Notes; (iii) the release of the
Guarantor from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which
obligation gave rise to the guarantee of the Notes; and (iv) upon legal defeasance, covenant defeasance or satisfaction and
discharge of the Indenture, as defined in the Indenture.
Presented below are the condensed consolidating financial statements of the Parent, the Guarantors, the non-guarantor
subsidiaries (the "Non-Guarantors"), and the elimination entries necessary to present the Company's financial statements on a
consolidated basis as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934 resulting from the
guarantees of the Notes. Investments in consolidated subsidiaries have been presented under the equity method of accounting.
The principal elimination entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and
expenses. The condensed consolidating financial statements below have been prepared from the Company's financial
information on the same basis of accounting as the consolidated financial statements, and may not necessarily be indicative of
the financial position, results of operations or cash flows had the Parent, Guarantors and Non-Guarantors operated as
independent entities.
79
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
(In thousands)
Current Assets:
Assets
Cash and equivalents
Receivables, net
Intercompany receivables, net
Inventory
Deferred income taxes
Prepaid income taxes
Prepaid expenses and other current assets
Total Current Assets
Property and Equipment, net
Intangible Assets:
Goodwill
Other intangibles, net
Investment in Subsidiaries
Intercompany Notes Receivable
Other Assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable
Intercompany payables, net
Accrued expenses:
Accrued payroll-related liabilities
Other accrued expenses
Income taxes payable
Contingent consideration liabilities
Other current liabilities
Current portion of long-term obligations
Total Current Liabilities
Long-Term Obligations, Excluding Current Portion
Intercompany Notes Payable
Deferred Income Taxes
Contingent Consideration Liabilities
Other Noncurrent Liabilities
Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
Parent
Guarantors
December 31, 2013
Non-
Guarantors
Eliminations
Consolidated
$
$
77,926
—
2,275
—
3,189
6,429
1,495
91,314
668
$
13,693
126,926
6,923
687,164
57,422
—
24,190
916,318
419,617
$
58,869
331,168
—
389,788
3,327
1,640
16,591
801,383
126,366
— $
—
(9,198)
—
—
—
—
(9,198)
—
150,488
458,094
—
1,076,952
63,938
8,069
42,276
1,799,817
546,651
— 1,248,746
56,069
—
264,815
2,364,586
118,740
959,185
20,133
49,218
$ 3,044,438
$ 3,464,971
688,698
97,670
—
—
— (2,629,401)
— (1,077,925)
(5,469)
1,937,444
153,739
—
—
81,123
$ (3,721,993) $ 4,518,774
17,241
$ 1,731,358
$
314
—
$
147,708
—
$
201,047
9,198
$
— $
(9,198)
349,069
—
5,236
26,714
2,517
—
286
24,421
59,488
1,016,249
—
—
—
38,489
2,350,745
$ 3,464,971
32,850
56,877
—
1,923
13,039
3,030
255,427
6,554
611,274
110,110
877
45,540
2,014,656
$ 3,044,438
20,609
56,483
14,923
50,542
5,350
14,084
372,236
241,443
466,651
29,181
2,311
4,791
614,745
$ 1,731,358
—
—
—
—
—
—
(9,198)
—
(1,077,925)
(5,469)
—
—
(2,629,401)
58,695
140,074
17,440
52,465
18,675
41,535
677,953
1,264,246
—
133,822
3,188
88,820
2,350,745
$ (3,721,993) $ 4,518,774
80
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
(In thousands)
Current Assets:
Assets
Cash and equivalents
Receivables, net
Intercompany receivables, net
Inventory
Deferred income taxes
Prepaid income taxes
Prepaid expenses and other current assets
Total Current Assets
Property and Equipment, net
Intangible Assets:
Goodwill
Other intangibles, net
Investment in Subsidiaries
Intercompany Notes Receivable
Other Assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable
Intercompany payables, net
Accrued expenses:
Accrued payroll-related liabilities
Other accrued expenses
Income taxes payable
Contingent consideration liabilities
Other current liabilities
Current portion of long-term obligations
Total Current Liabilities
Long-Term Obligations, Excluding Current Portion
Intercompany Notes Payable
Deferred Income Taxes
Contingent Consideration Liabilities
Other Noncurrent Liabilities
Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
Parent
Guarantors
December 31, 2012
Non-
Guarantors
Eliminations
Consolidated
$
$
18,396
—
1,781
—
4,778
26,538
1,065
52,558
970
$
18,253
94,435
5,970
690,365
45,255
—
16,608
870,886
408,944
$
23,121
217,373
—
210,438
3,452
2,999
11,275
468,658
84,465
— $
—
(7,751)
—
—
—
—
(7,751)
—
59,770
311,808
—
900,803
53,485
29,537
28,948
1,384,351
494,379
— 1,226,718
61,815
—
142,334
1,923,997
39,239
711,624
17,830
41,692
$ 2,767,766
$ 2,730,841
463,566
44,900
—
—
— (2,066,331)
(750,863)
—
(15,323)
3,528
$ 1,065,117
1,690,284
106,715
—
—
47,727
$ (2,840,268) $ 3,723,456
$
$
52
—
$
97,678
—
121,605
7,751
$
— $
(7,751)
219,335
—
3,731
2,258
—
—
286
32,300
38,627
691,670
—
—
—
36,450
1,964,094
$ 2,730,841
25,697
48,805
—
1,518
16,241
9,940
199,879
7,549
681,275
102,702
2,500
35,383
1,738,478
$ 2,767,766
14,972
39,359
2,748
40,737
541
29,476
257,189
347,543
69,588
14,896
45,254
2,794
327,853
$ 1,065,117
—
—
—
—
—
—
(7,751)
—
(750,863)
(15,323)
—
—
(2,066,331)
44,400
90,422
2,748
42,255
17,068
71,716
487,944
1,046,762
—
102,275
47,754
74,627
1,964,094
$ (2,840,268) $ 3,723,456
81
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Income
(In thousands)
Revenue
Cost of goods sold
Gross margin
Facility and warehouse expenses
Distribution expenses
Selling, general and administrative expenses
Restructuring and acquisition related expenses
Depreciation and amortization
Operating (loss) income
Other expense (income):
Interest expense
Intercompany interest (income) expense, net
Loss on debt extinguishment
Change in fair value of contingent consideration
liabilities
Interest and other expense (income), net
Total other expense, net
(Loss) income before (benefit) provision for income
taxes
(Benefit) provision for income taxes
Equity in earnings of subsidiaries
Net income
Year Ended December 31, 2013
$
Parent
Guarantors
— $ 3,576,269
2,100,804
—
1,475,465
—
323,042
—
297,908
—
377,481
26,778
1,406
—
55,802
250
419,826
(27,028)
Non-
Guarantors
$ 1,598,832
998,895
599,937
102,039
134,039
192,793
8,767
24,917
137,382
Eliminations
Consolidated
$ (112,573) $ 5,062,528
2,987,126
2,075,402
425,081
431,947
597,052
10,173
80,969
530,180
(112,573)
—
—
—
—
—
—
—
42,442
(45,459)
2,795
—
252
30
640
21,978
—
(744)
(2,858)
19,016
8,102
23,481
—
3,248
476
35,307
—
—
—
—
—
—
51,184
—
2,795
2,504
(2,130)
54,353
(27,058)
(7,193)
331,488
311,623
$
400,810
151,369
22,050
271,491
$
102,075
20,028
—
82,047
—
—
(353,538)
$ (353,538) $
475,827
164,204
—
311,623
$
82
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Income
(In thousands)
Revenue
Cost of goods sold
Gross margin
Facility and warehouse expenses
Distribution expenses
Selling, general and administrative expenses
Restructuring and acquisition related expenses
Depreciation and amortization
Operating (loss) income
Other (income) expense:
Interest expense
Intercompany interest (income) expense, net
Change in fair value of contingent consideration
liabilities
Interest and other income, net
Total other (income) expense, net
(Loss) income before (benefit) provision for income
taxes
(Benefit) provision for income taxes
Equity in earnings of subsidiaries
Net income
Year Ended December 31, 2012
$
Parent
Guarantors
— $ 3,236,507
1,886,098
—
1,350,409
—
287,036
—
281,011
—
346,596
21,098
1,812
—
49,782
296
384,172
(21,394)
Non-
Guarantors
976,710
$
602,979
373,731
60,881
94,824
127,897
939
14,015
75,175
Eliminations
$
Consolidated
(90,287) $ 4,122,930
2,398,790
(90,287)
1,724,140
—
347,917
—
375,835
—
495,591
—
2,751
—
64,093
—
437,953
—
24,272
(37,491)
—
(43)
(13,262)
308
27,377
(1,943)
(3,638)
22,104
6,849
10,114
3,586
(605)
19,944
—
—
—
—
—
31,429
—
1,643
(4,286)
28,786
(8,132)
(3,287)
266,070
261,225
$
362,068
140,150
12,481
234,399
$
$
55,231
11,079
—
44,152
—
—
(278,551)
$ (278,551) $
409,167
147,942
—
261,225
83
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Income
(In thousands)
Revenue
Cost of goods sold
Gross margin
Facility and warehouse expenses
Distribution expenses
Selling, general and administrative expenses
Restructuring and acquisition related expenses
Depreciation and amortization
Operating (loss) income
Other (income) expense:
Interest expense
Intercompany interest (income) expense, net
Loss on debt extinguishment
Change in fair value of contingent consideration
liabilities
Interest and other income, net
Total other (income) expense, net
(Loss) income before (benefit) provision for income
taxes
(Benefit) provision for income taxes
Equity in earnings of subsidiaries
Net income
Year Ended December 31, 2011
$
Parent
Guarantors
— $ 2,975,275
1,721,419
—
1,253,856
—
261,260
—
257,395
—
321,403
22,680
3,438
—
44,724
239
365,636
(22,919)
Non-
Guarantors
370,912
$
232,775
138,137
32,163
30,231
47,859
4,152
4,966
18,766
Eliminations
$
(76,325)
(76,325)
—
—
—
—
—
—
—
Consolidated
3,269,862
1,877,869
1,391,993
293,423
287,626
391,942
7,590
49,929
361,483
21,839
(36,018)
5,345
(2,000)
(332)
(11,166)
99
31,036
—
11
(1,979)
29,167
2,369
4,982
—
581
(221)
7,711
—
—
—
—
—
—
24,307
—
5,345
(1,408)
(2,532)
25,712
(11,753)
(6,034)
215,983
210,264
$
336,469
128,930
3,036
210,575
$
$
11,055
2,611
—
8,444
—
—
(219,019)
$ (219,019) $
335,771
125,507
—
210,264
84
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income, net of tax:
Year Ended December 31, 2013
Parent
311,623
$
Guarantors
271,491
$
Non-
Guarantors
82,047
$
Eliminations
$ (353,538) $
Consolidated
311,623
Foreign currency translation
Net change in unrecognized gains/losses on derivative
instruments, net of tax
Unrealized gain on pension plan, net of tax
Total other comprehensive income
Total comprehensive income
14,056
7,168
15,495
(22,663)
14,056
4,495
701
19,252
330,875
—
—
7,168
278,659
$
$
$
1,322
701
17,518
99,565
(1,322)
(701)
(24,686)
$ (378,224) $
4,495
701
19,252
330,875
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation
Net change in unrecognized gains/losses on derivative
instruments, net of tax
Total other comprehensive income
Total comprehensive income
Year Ended December 31, 2012
Parent
261,225
$
Guarantors
234,399
$
Non-
Guarantors
44,152
$
Eliminations
$ (278,551) $
Consolidated
261,225
12,921
5,278
12,334
(17,612)
12,921
(3,201)
9,720
270,945
$
—
5,278
239,677
$
$
(519)
11,815
55,967
519
(17,093)
$ (295,644) $
(3,201)
9,720
270,945
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive loss, net of tax:
Foreign currency translation
Net change in unrecognized gains/losses on derivative
instruments, net of tax
Total other comprehensive loss
Total comprehensive income
Year Ended December 31, 2011
Parent
210,264
$
Guarantors
210,575
$
Non-
Guarantors
8,444
$
Eliminations
$ (219,019) $
Consolidated
210,264
(4,273)
(1,440)
(3,790)
5,230
(4,273)
(9,066)
(13,339)
196,925
$
—
(1,440)
209,135
$
$
(1,042)
(4,832)
3,612
1,042
6,272
$ (212,747) $
(9,066)
(13,339)
196,925
85
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from sales of property and equipment
Investment in unconsolidated subsidiary
Investment and intercompany note activity with
subsidiaries
Acquisitions, net of cash acquired
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
Excess tax benefit from stock-based payments
Debt issuance costs
Proceeds from issuance of senior notes
Borrowings under revolving credit facility
Repayments under revolving credit facility
Borrowings under term loans
Repayments under term loans
Borrowings under receivables securitization facility
Repayments under receivables securitization facility
Repayments of other long-term debt
Payments of other obligations
Investment and intercompany note activity with parent
Dividends
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and equivalents
Net increase (decrease) in cash and equivalents
Cash and equivalents, beginning of period
Cash and equivalents, end of period
$
Year Ended December 31, 2013
Parent
Guarantors
Non-
Guarantors
Eliminations
Consolidated
$
160,620
$
260,567
$
126,681
$ (119,812) $
428,056
—
—
—
(434,172)
—
(434,172)
15,392
18,348
(16,858)
600,000
315,000
(616,000)
35,000
(16,875)
—
—
(925)
—
—
—
333,082
—
59,530
18,396
77,926
(57,219)
1,191
—
(84,894)
(33,436)
(174,358)
—
—
—
—
—
—
—
—
—
—
(8,930)
(473)
38,446
(119,812)
(90,769)
—
(4,560)
18,253
13,693
$
(32,967)
909
(9,136)
—
(374,948)
(416,142)
—
—
(82)
—
122,023
(132,086)
—
—
41,500
(121,500)
(35,207)
(32,386)
480,620
—
322,882
2,327
35,748
23,121
58,869
—
—
—
519,066
—
519,066
—
—
—
—
—
—
—
—
—
—
—
—
(519,066)
119,812
(399,254)
—
—
—
— $
(90,186)
2,100
(9,136)
—
(408,384)
(505,606)
15,392
18,348
(16,940)
600,000
437,023
(748,086)
35,000
(16,875)
41,500
(121,500)
(45,062)
(32,859)
—
—
165,941
2,327
90,718
59,770
150,488
$
$
86
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
(In thousands)
Year Ended December 31, 2012
Parent
Guarantors
Non-
Guarantors
Eliminations
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities
$
150,309
$
289,013
$
(74,085) $ (159,047) $
206,190
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from sales of property and equipment
Investment and intercompany note activity with
subsidiaries
Acquisitions, net of cash acquired
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
Excess tax benefit from stock-based payments
Debt issuance costs
Borrowings under revolving credit facility
Repayments under revolving credit facility
Borrowings under term loans
Repayments under term loans
Borrowings under receivables securitization facility
Repayments under receivables securitization facility
Repayments of other long-term debt
Payments of other obligations
Investment and intercompany note activity with parent
Dividends
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and equivalents
Net increase in cash and equivalents
Cash and equivalents, beginning of period
Cash and equivalents, end of period
$
(150)
—
(132,006)
—
(132,156)
17,693
15,737
(30)
612,700
(832,700)
200,000
(20,000)
—
—
(3,065)
—
—
—
(9,665)
—
8,488
9,908
18,396
(68,344)
699
—
(183,716)
(251,361)
—
—
—
—
—
—
—
—
—
(2,568)
(4,293)
129,076
(159,047)
(36,832)
—
820
17,433
18,253
$
(19,761)
358
—
(81,620)
(101,023)
—
—
(223)
129,681
(22,702)
—
—
82,700
(2,700)
(13,158)
—
2,930
—
176,528
795
2,215
20,906
23,121
—
—
132,006
—
132,006
—
—
—
—
—
—
—
—
—
—
—
(132,006)
159,047
27,041
—
—
—
— $
(88,255)
1,057
—
(265,336)
(352,534)
17,693
15,737
(253)
742,381
(855,402)
200,000
(20,000)
82,700
(2,700)
(18,791)
(4,293)
—
—
157,072
795
11,523
48,247
59,770
$
$
87
LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from sales of property and equipment
Investment and intercompany note activity with
subsidiaries
Acquisitions, net of cash acquired
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
Excess tax benefit from stock-based payments
Debt issuance costs
Borrowings under revolving credit facility
Repayments under revolving credit facility
Borrowings under term loans
Repayments under term loans
Repayments of other long-term debt
Investment and intercompany note activity with parent
Dividends
Net cash provided by financing activities
Effect of exchange rate changes on cash and equivalents
Net (decrease) increase in cash and equivalents
Cash and equivalents, beginning of period
Cash and equivalents, end of period
$
Year Ended December 31, 2011
Parent
Guarantors
Non-
Guarantors
Eliminations
Consolidated
$
72,199
$
201,029
$
4,341
$
(65,797) $
211,772
(922)
2
(79,474)
1,557
(6,020)
184
(347,005)
—
(347,925)
11,919
7,973
(10,874)
748,329
(227,329)
250,000
(563,079)
(1,640)
—
—
215,299
—
(60,427)
70,335
9,908
(93,985)
(193,292)
(365,194)
—
—
—
—
—
—
—
(849)
226,872
(65,797)
160,226
—
(3,939)
21,372
17,433
$
—
(293,642)
(299,478)
—
—
(174)
363,040
(226,538)
—
(37,385)
(1,982)
214,118
—
311,079
982
16,924
3,982
20,906
$
—
—
440,990
—
440,990
(86,416)
1,743
—
(486,934)
(571,607)
11,919
—
7,973
—
—
(11,048)
— 1,111,369
(453,867)
—
250,000
—
(600,464)
—
(4,471)
—
(440,990)
—
—
65,797
(375,193)
311,411
982
—
(47,442)
—
95,689
—
48,247
— $
$
88
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2013, the end of the period covered by this report, an evaluation was carried out under the
supervision and with the participation of LKQ Corporation's management, including our Chief Executive Officer and our Chief
Financial Officer, of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file with
the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the
Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Report of Management on Internal Control over Financial Reporting dated March 3, 2014
Management of LKQ Corporation and subsidiaries (the "Company") is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States. Internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors
of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Company's assets that could have a material effect on the Company's financial statements.
We have excluded from our assessment the internal control over financial reporting at Sator Beheer B.V. ("Sator"),
which was acquired effective May 1, 2013, and whose financial statements constitute 4% and 9% of net and total assets,
respectively, 5% of revenue, and 2% of net income of the consolidated financial statement amounts as of and for the year ended
December 31, 2013.
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices,
and actions taken to correct deficiencies as identified. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with
the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31,
2013. Management based this assessment on criteria for effective internal control over financial reporting described in Internal
Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management's assessment included an evaluation of the design of the Company's internal control over financial reporting and
testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its
assessment with the Audit Committee of the Company's Board of Directors.
Based on this assessment, management determined that, as of December 31, 2013, the Company maintained effective
internal control over financial reporting. Deloitte & Touche LLP, independent registered public accounting firm, who audited
and reported on the consolidated financial statements of the Company included in this report, has issued an attestation report on
the effectiveness of our internal control over financial reporting as of December 31, 2013.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s
most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
89
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of LKQ Corporation:
We have audited the internal control over financial reporting of LKQ Corporation and subsidiaries (the "Company") as
of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. As described in Report of Management on Internal
Control over Financial Reporting dated March 3, 2014, management excluded from its assessment the internal control over
financial reporting at Sator Beheer B.V., which was acquired on May 1, 2013 and whose financial statements constitute 4% and
9% of net and total assets, respectively, 5% of revenue and 2% of net income of the consolidated financial statement amounts
as of and for the year ended December 31, 2013. Accordingly, our audit did not include the internal control over financial
reporting at Sator Beheer B.V. The Company's management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2013, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule of the Company as of and for the year ended
December 31, 2013 and our report dated March 3, 2014 expressed an unqualified opinion on those financial statements and
financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 3, 2014
90
ITEM 9B.
OTHER INFORMATION
None.
91
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Directors
The information appearing under the caption "Election of our Board of Directors" in our Proxy Statement for the
Annual Meeting of Stockholders to be held May 5, 2014 (the "Proxy Statement") is incorporated herein by reference.
Executive Officers
Our executive officers, their ages at December 31, 2013, and their positions with us are set forth below. Our executive
officers are elected by and serve at the discretion of our Board of Directors.
Name
Age
Position
Robert L. Wagman
John S. Quinn
Victor M. Casini
Walter P. Hanley
Steven Greenspan
49
55
51
47
52
President, Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer
Senior Vice President, General Counsel and Corporate Secretary
Senior Vice President—Development
Senior Vice President of Operations—Wholesale Parts Division
Michael S. Clark
39 Vice President—Finance and Controller
Robert L. Wagman became our President and Chief Executive Officer on January 1, 2012. He was elected to our Board of
Directors on November 7, 2011. Mr. Wagman was our President and Co-Chief Executive Officer from January 1, 2011 to
January 1, 2012. Prior thereto, he had been our Senior Vice President of Operations—Wholesale Parts Division, with oversight
of our wholesale late model operations since August 2009. Prior thereto, from October 1998, Mr. Wagman managed our
insurance company relationships, and from February 2004, added to his responsibilities the oversight of our aftermarket
product operations. He was elected our Vice President of Insurance Services and Aftermarket Operations in August
2005. Before joining us, Mr. Wagman served from April 1995 to October 1998 as the Outside Sales Manager of Triplett Auto
Parts, Inc., a recycled auto parts company that we acquired in July 1998. He started in our industry in 1987 as an Account
Executive for Copart Auto Auctions, a processor and seller of salvage vehicles through auctions.
John S. Quinn has been our Executive Vice President and Chief Financial Officer since November 2009. Prior to joining our
Company, he was the Senior Vice President, Chief Financial Officer and Treasurer of Casella Waste Systems, Inc., a company
in the solid waste management services industry from January 2009. From January 2001 to January 2009 he held various
positions of increasing responsibility with Allied Waste Industries, Inc., a company also in the solid waste management services
industry, including Senior Vice President of Finance from January 2005 to January 2009, Controller and Chief Accounting
Officer from November 2006 to September 2007 and Vice President Financial Analysis and Planning from January 2003 to
January 2005. From August 1987 to January 2001, he held various positions with Waste Management Inc.'s foreign
subsidiaries, and Waste Management International, plc. in Canada and the United Kingdom. Prior to working for Waste
Management, he worked for Ford Glass Ltd., a subsidiary of Ford Motor Company.
Victor M. Casini has been our Vice President, General Counsel and Corporate Secretary from our inception in February 1998.
In March 2008, he was elected Senior Vice President. Mr. Casini was a member of our Board of Directors from May 2010 until
May 2012. From July 1992 to December 2011, Mr. Casini was the Executive Vice President and General Counsel of Flynn
Enterprises, Inc., a venture capital, hedging and consulting firm. Mr. Casini served as Senior Vice President, General Counsel
and Corporate Secretary of Discovery Zone, Inc., an operator and franchiser of family entertainment centers, from July 1992
until May 1995. Prior to July 1992, Mr. Casini practiced corporate and securities law with the law firm of Bell, Boyd & Lloyd
LLP (now known as K&L Gates LLP) in Chicago, Illinois for more than five years.
Walter P. Hanley joined us in December 2002 as our Vice President of Development, Associate General Counsel and Assistant
Secretary. In December 2005, he became our Senior Vice President of Development. Mr. Hanley served as Senior Vice
President, General Counsel and Secretary of Emerald Casino, Inc., an owner of a license to operate a riverboat casino in the
State of Illinois, from June 1999 until August 2002. Mr. Hanley served as Senior Vice President, General Counsel and Secretary
of Blue Chip Casino, Inc., an owner and operator of a riverboat gaming vessel in Michigan City, Indiana, from July 1996 until
November 1999. Mr. Hanley served as Vice President and Associate General Counsel of Flynn Enterprises, Inc. from May 1995
until February 1998 and as Associate General Counsel of Discovery Zone, Inc. from March 1993 until May 1995. Prior to
March 1993, Mr. Hanley practiced corporate and securities law with the law firm of Bell, Boyd & Lloyd LLP (now known as
K&L Gates LLP) in Chicago, Illinois.
92
Steven Greenspan became our Senior Vice President of Operations – Wholesale Parts Division on January 1, 2012. Mr.
Greenspan has been in the recycled automotive parts industry for approximately 30 years. He served as our Regional Vice
President—Mid-Atlantic Region from January 2003 to December 2011. He was the Manager of our Atlanta facility from May
1998 until December 2002. Prior thereto, he was the Manager of a company that we acquired in 1998.
Michael S. Clark has been our Vice President—Finance and Controller since February 2011. Prior thereto, he served as our
Assistant Controller since May 2008. Prior to joining our Company, he was the SEC Reporting Manager of FMC Technologies,
Inc., a global provider of technology solutions for the energy industry, from December 2004 to May 2008. Before joining FMC
Technologies, Mr. Clark, a certified public accountant, worked in public accounting for more than eight years, leaving as a
Senior Manager in the audit practice of Deloitte & Touche.
Code of Ethics
A copy of our Code of Ethics for Financial Officers is available free of charge through our website at
www.lkqcorp.com.
Section 16 Compliance
Information appearing under the caption "Other Information—Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement is incorporated herein by reference.
Audit Committee
Information appearing under the caption "Corporate Governance—Committees of the Board—Audit Committee" in
the Proxy Statement is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
Information appearing under the captions "Director Compensation—Director Compensation Table," "Executive
Compensation—Compensation Discussion and Analysis," "Corporate Governance—Compensation Committee Interlocks and
Insider Participation" and "Executive Compensation—Compensation Tables" in the Proxy Statement is incorporated herein by
reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information appearing under the caption "Other Information—Principal Stockholders" in the Proxy Statement is
incorporated herein by reference.
The following table provides information about our common stock that may be issued under our equity compensation
plans as of December 31, 2013.
Equity Compensation Plan Information
Plan Category
Equity compensation plans approved by stockholders
Stock options
Restricted stock units
Total equity compensation plans approved by
stockholders
Equity compensation plans not approved by
stockholders
Total
Number of
securities to be issued
upon exercise of
outstanding options,
warrants, and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants, and rights
(b)
Number of securities remaining
available for future
issuance under equity
compensation plans (excluding
securities reflected in column (a))
(c)
6,832,331
2,558,213
$
$
9,390,544
7.04
—
— $
—
9,390,544
13,965,440
—
13,965,440
The number of securities to be issued upon exercise of outstanding options, warrants, and rights includes outstanding
stock options and outstanding restricted stock units but excludes restricted stock. See Note 3, "Equity Incentive Plans," to the
consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information related to the
equity incentive plans listed above.
93
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information appearing under the caption "Other Information—Certain Transactions," "Election of our Board of
Directors" and "Corporate Governance - Director Independence" in the Proxy Statement is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information appearing under the caption "Appointment of Our Independent Registered Public Accounting Firm—
Audit Fees and Non-Audit Fees" and "Appointment of Our Independent Registered Public Accounting Firm—Policy on Audit
Committee Approval of Audit and Non-Audit Services" in the Proxy Statement is incorporated herein by reference.
94
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
Reference is made to the information set forth in Part II, Item 8 of this Report, which information is incorporated
herein by reference.
(a)(2) Financial Statement Schedules
Other than as set forth below, all schedules for which provision is made in the applicable accounting regulations of the
SEC have been omitted because they are not required under the related instructions, are not applicable, or the information has
been provided in the consolidated financial statements or the notes thereto.
Schedule II—Valuation and Qualifying Accounts and Reserves
Descriptions
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
Acquisitions and
Other
(in thousands)
Deductions
Balance at End
of Period
Year ended December 31, 2011
$
6,895
$
5,084
$
2,199
$
Year ended December 31, 2012
Year ended December 31, 2013
8,347
9,470
5,928
7,148
308
3,633
(5,831) $
(5,113)
(5,891)
8,347
9,470
14,360
ALLOWANCE FOR ESTIMATED
RETURNS, DISCOUNTS &
ALLOWANCES:
Year ended December 31, 2011
$
18,185
$
668,936
$
2,754
$
Year ended December 31, 2012
Year ended December 31, 2013
22,804
24,692
714,880
797,380
1,151
825
(667,071) $
(714,143)
(796,261)
22,804
24,692
26,636
95
(a)(3) Exhibits
The exhibits to this Annual Report are listed in Item 15(b) of this Annual Report. Included in the exhibits listed therein
are the following exhibits which constitute management contracts or compensatory plans or arrangements:
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.28
10.29
10.30
10.31
10.32
10.33
LKQ Corporation Employees’ Retirement Plan, as amended and restated as of January 1, 2012.
LKQ Corporation 401(k) Plus Plan dated August 1, 1999.
Amendment to LKQ Corporation 401(k) Plus Plan.
Trust for LKQ Corporation 401(k) Plus Plan.
LKQ Corporation 401(k) Plus Plan II, as amended and restated effective as of January 1, 2011.
LKQ Corporation 1998 Equity Incentive Plan, as amended.
Form of LKQ Corporation Award Agreement for options granted under the 1998 Equity Incentive Plan.
Form of LKQ Corporation Restricted Stock Agreement.
Form of LKQ Corporation Restricted Stock Unit Agreement for Non-Employee Directors.
Form of LKQ Corporation Restricted Stock Unit Agreement.
Form of LKQ Corporation performance-based Restricted Stock Unit Agreement for first tranche of restricted
stock units granted in March 2013.
Form of LKQ Corporation performance-based Restricted Stock Unit Agreement for second tranche of restricted
stock units granted in March 2013.
Form of LKQ Corporation performance-based Restricted Stock Unit Agreement for third tranche of restricted
stock units granted in March 2013.
LKQ Corporation Amended and Restated Stock Option and Compensation Plan for Non-Employee Directors, as
amended.
Form of Indemnification Agreement between directors and officers of LKQ Corporation and LKQ Corporation.
LKQ Management Incentive Plan.
Form of LKQ Corporation Executive Officer 2012 Bonus Program Award Memorandum.
Form of LKQ Corporation Executive Officer 2013 Bonus Program Award Memorandum.
Form of LKQ Corporation Executive Officer 2014 Bonus Program Award Memorandum.
LKQ Corporation Long Term Incentive Plan.
Consulting Agreement, as amended and restated, dated as of May 21, 2009 between LKQ Corporation and
Joseph M. Holsten.
Amendment Agreement dated as of January 31, 2011 to the Consulting Agreement between LKQ Corporation
and Joseph M. Holsten dated as of May 21, 2009.
Change of Control Agreement between LKQ Corporation and Robert L. Wagman, as amended and restated as of
March 21, 2012.
Change of Control Agreement dated as of December 6, 2010 between LKQ Corporation and John S. Quinn.
Change of Control Agreement dated as of December 6, 2010 between LKQ Corporation and Walter P. Hanley.
Change of Control Agreement dated as of December 6, 2010 between LKQ Corporation and Victor M. Casini.
Change of Control Agreement dated as of March 14, 2011 between LKQ Corporation and Michael S. Clark.
Change of Control Agreement dated as of December 6, 2010 between LKQ Corporation and Steven Greenspan.
(b) Exhibits
3.1
3.2
4.1
4.2
Certificate of Incorporation of LKQ Corporation, as amended to date.
Amended and Restated Bylaws of LKQ Corporation (incorporated herein by reference to Exhibit 3.1 to the
Company’s report on Form 8-K filed with the SEC on November 6, 2013).
Specimen of common stock certificate (incorporated herein by reference to Exhibit 4.1 to the Company’s
Registration Statement on Form S-1/A, Registration No. 333-107417 filed with the SEC on September 12, 2003).
Amendment and Restatement Agreement dated as of May 3, 2013 by and among LKQ Corporation, LKQ
Delaware LLP, and certain additional subsidiaries of LKQ Corporation, as borrowers, certain financial
institutions, as lenders, and Wells Fargo Bank, National Association, as administrative agent (incorporated herein
by reference to Exhibit 4.1 to the Company's report on Form 8-K filed with the SEC on May 6, 2013).
96
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Indenture dated as of May 9, 2013 among LKQ Corporation, as Issuer, the Guarantors, and U.S. Bank National
Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 8-K
filed with the SEC on May 10, 2013).
LKQ Corporation Employees’ Retirement Plan, as amended and restated as of January 1, 2012 (incorporated
herein by reference to Exhibit 10.6 to the Company’s report on Form 10-K filed with the SEC on February 27,
2012).
LKQ Corporation 401(k) Plus Plan dated August 1, 1999 (incorporated herein by reference to Exhibit 10.23 to
the Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28,
2003).
Amendment to LKQ Corporation 401(k) Plus Plan (incorporated herein by reference to Exhibit 10.24 to the
Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28,
2003).
Trust for LKQ Corporation 401(k) Plus Plan (incorporated herein by reference to Exhibit 10.25 to the Company’s
Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28, 2003).
LKQ Corporation 401(k) Plus Plan II, as amended and restated effective as of January 1, 2011 (incorporated
herein by reference to Exhibit 10.8 to the Company’s report on Form 10-K for the year ended December 31,
2010).
LKQ Corporation 1998 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.6 to the
Company’s report on Form 10-K filed with the SEC on March 1, 2013).
Form of LKQ Corporation Award Agreement for options granted under the 1998 Equity Incentive Plan
(incorporated herein by reference to Exhibit 99.1 to the Company’s report on Form 8-K filed with the SEC on
January 11, 2005).
Form of LKQ Corporation Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.1 to the
Company’s report on Form 8-K filed with the SEC on January 17, 2008).
Form of LKQ Corporation Restricted Stock Unit Agreement for Non-Employee Directors (incorporated herein
by reference to Exhibit 10.4 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2013).
Form of LKQ Corporation Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.5 to
the Company’s report on Form 10-Q filed with the SEC on August 2, 2013).
Form of LKQ Corporation performance-based Restricted Stock Unit Agreement for first tranche of restricted
stock units granted in March 2013 (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-
K filed with the SEC on March 8, 2013).
Form of LKQ Corporation performance-based Restricted Stock Unit Agreement for second tranche of restricted
stock units granted in March 2013 (incorporated by reference to Exhibit 10.2 to the Company’s report on Form 8-
K filed with the SEC on March 8, 2013).
Form of LKQ Corporation performance-based Restricted Stock Unit Agreement for third tranche of restricted
stock units granted in March 2013 (incorporated by reference to Exhibit 10.3 to the Company’s report on Form 8-
K filed with the SEC on March 8, 2013).
LKQ Corporation Amended and Restated Stock Option and Compensation Plan for Non-Employee Directors, as
amended (incorporated herein by reference to Exhibit 10.5 to the Company’s report on Form 10-Q filed with the
SEC on November 7, 2008).
Form of Indemnification Agreement between directors and officers of LKQ Corporation and LKQ Corporation
(incorporated herein by reference to Exhibit 10.30 to the Company’s Registration Statement on Form S-1,
Registration No. 333-107417 filed with the SEC on July 28, 2003).
LKQ Management Incentive Plan (incorporated herein by reference to Appendix A to the Company’s Proxy
Statement for its Annual Meeting of Stockholders on May 2, 2011 filed on March 17, 2011).
Form of LKQ Corporation Executive Officer 2012 Bonus Program Award Memorandum (incorporated by
reference to Exhibit 10.15 to the Company’s report on Form 10-K filed with the SEC on March 1, 2013).
Form of LKQ Corporation Executive Officer 2013 Bonus Program Award Memorandum (incorporated by
reference to Exhibit 10.16 to the Company’s report on Form 10-K filed with the SEC on March 1, 2013).
Form of LKQ Corporation Executive Officer 2014 Bonus Program Award Memorandum.
LKQ Corporation Long Term Incentive Plan (incorporated herein by reference to Appendix B to the Company’s
Proxy. Statement for its Annual Meeting of Stockholders on May 7, 2012 filed on March 23, 2012).
Consulting Agreement, as amended and restated, dated as of May 21, 2009 between LKQ Corporation and
Joseph M. Holsten (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed
with the SEC on May 21, 2009).
97
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
12.1
14.1
21.1
Amendment Agreement dated as of January 31, 2011 to the Consulting Agreement between LKQ Corporation
and Joseph M. Holsten dated as of May 21, 2009 (incorporated herein by reference to Exhibit 10.1 to the
Company’s report on Form 8-K filed with the SEC on February 2, 2011).
ISDA 2002 Master Agreement between Bank of America, N.A. and LKQ Corporation, and related Schedule.
ISDA 2002 Master Agreement between Citizens Bank of Pennsylvania and LKQ Corporation, and related
Schedule.
ISDA 2002 Master Agreement between RBS Citizens, N.A. and LKQ Corporation, and related Schedule.
ISDA 2002 Master Agreement between Fifth Third Bank and LKQ Corporation, and related Schedule.
ISDA 2002 Master Agreement between Wells Fargo Bank, National Association and LKQ Corporation, and
related Schedule (incorporated by reference to Exhibit 10.3 to the Company’s report on Form 10-Q filed with the
SEC on August 2, 2013).
Change of Control Agreement between LKQ Corporation and Robert L. Wagman, as amended and restated as of
March 21, 2012 (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed
with the SEC on March 23, 2012).
Change of Control Agreement dated as of December 6, 2010 between LKQ Corporation and John S. Quinn
(incorporated herein by reference to Exhibit 10.21 to the Company’s report on Form 10-K filed with the SEC on
February 25, 2011).
Change of Control Agreement dated as of December 6, 2010 between LKQ Corporation and Walter P. Hanley
(incorporated herein by reference to Exhibit 10.22 to the Company’s report on Form 10-K filed with the SEC on
February 25, 2011).
Change of Control Agreement dated as of December 6, 2010 between LKQ Corporation and Victor M. Casini
(incorporated herein by reference to Exhibit 10.23 to the Company’s report on Form 10-K filed with the SEC on
February 25, 2011).
Change of Control Agreement dated as of March 14, 2011 between LKQ Corporation and Michael S. Clark
(incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on
March 15, 2011).
Change of Control Agreement dated as of December 6, 2010 between LKQ Corporation and Steven Greenspan.
(incorporated by reference to Exhibit 10.28 to the Company’s report on Form 10-K filed with the SEC on March
1, 2013)
Receivables Sale Agreement dated as of September 28, 2012 among Keystone Automotive Industries, Inc., as an
Originator, Greenleaf Auto Recyclers, LLC, as an Originator, and LKQ Receivables Finance Company, LLC, as
Buyer (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC
on October 4, 2012).
Receivables Purchase Agreement dated as of September 28, 2012 among LKQ Receivables Finance Company,
LLC, as Seller, LKQ Corporation, as Servicer, Victory Receivables Corporation, as a Conduit and The Bank of
Tokyo-Mitsubishi UFJ, Ltd., as a Financial Institution, as Administrative Agent and as a Managing Agent
(incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on
October 4, 2012).
Performance Undertaking, dated as of September 28, 2012 by LKQ Corporation in favor of LKQ Receivables
Finance Company, LLC (incorporated herein by reference to Exhibit 10.3 to the Company’s report on Form 8-K
filed with the SEC on October 4, 2012).
Agreement for the Sale and Purchase of Shares in the Capital of Sator Beheer B.V. dated April 23, 2013 by and
among H2 Sator B.V., Cooperatieve H2 Sator U.A., Holding Sator Management B.V. and LKQ Netherlands B.V.
(incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q filed with the SEC on August
2, 2013).
Proposed Activity Agreement dated April 22, 2013 between Draco Limited, LKQ Euro Limited and LKQ
Corporation (incorporated by reference to Exhibit 10.2 to the Company’s report on Form 10-Q filed with the SEC
on August 2, 2013).
Registration Rights Agreement dated as of May 9, 2013 among LKQ Corporation, the Guarantors, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Representative of Initial Purchasers (incorporated herein by
reference to Exhibit 10.6 to the Company's report on Form 8-K filed with the SEC on May 10, 2013).
Agreement and Plan of Merger dated as of December 5, 2013 among Keystone Automotive Holdings, Inc., LKQ
Corporation, KAH Acquisition Sub, Inc., certain stockholders of Keystone Automotive Holdings, Inc., and the
Equityholders Representative.
Computation of Ratio of Earnings to Fixed Charges.
LKQ Corporation Code of Ethics (incorporated by reference to Exhibit 14.1 to the Company’s report on Form
10-Q filed with the SEC on August 2, 2013).
List of subsidiaries, jurisdictions and assumed names.
98
23.1
31.1
31.2
32.1
32.2
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
99
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 3, 2014.
SIGNATURES
LKQ CORPORATION
By:
/s/ ROBERT L. WAGMAN
Robert L. Wagman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on March 3, 2014.
Signature
Title
Principal Executive Officer:
/s/ ROBERT L. WAGMAN
Robert L. Wagman
Principal Financial Officer:
/s/ JOHN S. QUINN
John S. Quinn
Principal Accounting Officer:
/s/ MICHAEL S. CLARK
Michael S. Clark
A Majority of the Directors:
/s/ A. CLINTON ALLEN
A. Clinton Allen
/s/ RONALD G. FOSTER
Ronald G. Foster
/s/ JOSEPH M. HOLSTEN
Joseph M. Holsten
/s/ BLYTHE J. MCGARVIE
Blythe J. McGarvie
/s/ PAUL M. MEISTER
Paul M. Meister
/s/ JOHN F. O'BRIEN
John F. O'Brien
/s/ GUHAN SUBRAMANIAN
Guhan Subramanian
/s/ ROBERT L. WAGMAN
Robert L. Wagman
/s/ WILLIAM M. WEBSTER, IV
William M. Webster, IV
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Vice President—Finance and Controller
Director
Director
Director
Director
Director
Director
Director
Director
Director
100
Exhibit 3.1
CONFORMED COPY OF
CERTIFICATE OF INCORPORATION
OF
LKQ CORPORATION,
AS AMENDED TO DATE
[Conformed copy giving effect to all amendments since the date of the filing of the original Certificate of Incorporation on
February 13, 1998.]
FIRST: The name of the corporation is LKQ Corporation.
SECOND: The address of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of capital stock which the corporation shall have authority to issue is
one billion (1,000,000,000) shares of common stock, par value $.01 per share.
FIFTH: Meetings of the stockholders may be held within or outside the State of Delaware, as the bylaws may provide.
Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or
special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.
Special meetings of the stockholders of the corporation may be called only by the President of the corporation or by a
resolution adopted by the affirmative vote of a majority of the board of directors.
SIXTH: The number of directors constituting the board of directors shall be that number as shall be fixed by the bylaws
of the corporation. Election of directors need not be by written ballot unless the bylaws of the corporation so provide.
SEVENTH: The board of directors of the corporation is expressly authorized to adopt, amend or repeal the bylaws of the
corporation. The stockholders shall also have the power to adopt, amend or repeal the bylaws of the corporation.
EIGHTH: No director of the corporation shall be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent provided by applicable law (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved
intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which the director derived an improper personal benefit.
NINTH: The corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered
by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
TENTH: The books of the corporation may be kept outside the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the bylaws of the corporation.
ELEVENTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in the
Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Delaware and this Certificate
of Incorporation, and all rights and powers conferred herein upon stockholders are granted subject to this reservation.
TWELFTH: The name and mailing address of the incorporator is as follows:
Victor M. Casini
Name
Mailing Address
676 North Michigan Avenue
Suite 4000
Chicago, Illinois 60611
IN WITNESS WHEREOF, the undersigned has executed and acknowledged this Conformed Copy of the Certificate of
Incorporation of LKQ Corporation this 3rd day of March, 2014.
By:
LKQ Corporation
/S/ VICTOR M. CASINI
Name: Victor M. Casini
Title: Senior Vice President, General Counsel and
Corporate Secretary
Exhibit 10.19
EXHIBIT B
M E M O R A N D U M
TO:
FROM: Compensation Committee
DATE: ____________, 2014
RE:
2014 Bonus Program
You have been selected to participate in the LKQ Corporation Management Incentive Plan ("MIP") for purposes of
your potential 2014 bonus. The potential bonus described in this letter is subject to all of the terms and conditions set forth in
the MIP (a copy of which is attached to this letter).
Performance Period:
January 1, 2014 to December 31, 2014
Performance Goals:
The diluted earnings per share of LKQ Corporation ("EPS") for the Performance Period;
provided, however, that EPS shall be increased to the extent that EPS was reduced in
accordance with GAAP by objectively determinable amounts due to:
1. A change in accounting policy or GAAP;
2. Dispositions of assets or businesses;
3. Asset impairments;
4. Amounts incurred in connection with any financing;
5. Losses on interest rate swaps resulting from mark to market adjustments or discontinuing
hedges;
6. Board approved restructuring or similar charges including but not limited to charges in
conjunction with or in anticipation of an acquisition;
7. Losses related to environmental, legal, product liability or other contingencies;
8. Changes in tax laws;
9. Losses from discontinued operations; and
10. Other extraordinary, unusual or infrequently occurring items as disclosed in the
Company's financial statements or filings under the Securities Exchange Act of 1934.
In addition, the Compensation Committee shall adjust the Performance Goals or
other features of the Award that relate to the value or number of the shares of
common stock of the Company to reflect any stock dividend, stock split,
recapitalization, combination or exchange of shares, or other similar changes in
such stock. Notwithstanding the foregoing, the Compensation Committee, in its
sole discretion, may reduce the Actual Award payable to you below that which
otherwise would be payable pursuant to the Payout Formula or may eliminate the
Actual Award.
Target Award:
___% of Base Salary
Payout Formula:
EPS ($)
Less than
Percentage of Base Salary
0
Exhibit 10.23
ISDA
2002 MASTER AGREEMENT
International Swaps and Derivatives Association, Inc.
dated as of
June 27, 2013
Bank of America, N.A.
and LKQ Corporation
have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed
by this 2002 Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming
evidence (each a “Confirmation”) exchanged between the parties or otherwise effective for the purpose of confirming
or evidencing those Transactions. This 2002 Master Agreement and the Schedule are together referred to as this “Master
Agreement”.
Accordingly, the parties agree as follows:?
1.
Interpretation
Definitions. The terms defined in Section 14 and elsewhere in this Master Agreement will have the meanings
(a)
therein specified for the purpose of this Master Agreement.
Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions
(b)
of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement, such Confirmation will prevail for the purpose of the relevant Transaction.
Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all
(c)
Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the
parties would not otherwise enter into any Transactions.
2.
(a)
Obligations
General Conditions.
(i)
subject to the other provisions of this Agreement.
Each party will make each payment or delivery specified in each Confirmation to be made by it,
Payments under this Agreement will be made on the due date for value on that date in the place of
(ii)
the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required currency. Where settlement is
by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the
manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or
elsewhere in this Agreement.
Copyright © 2002 by International Swaps and Derivatives Association, Inc.
(iii)
Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no
Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing,
(2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred
or been effectively designated and (3) each other condition specified in this Agreement to be a condition
precedent for the purpose of this Section 2(a)(iii).
Change of Account. Either party may change its account for receiving a payment or delivery by giving notice
(b)
to the other party at least five Local Business Days prior to the Scheduled Settlement Date for the payment or delivery
to which such change applies unless such other party gives timely notice of a reasonable objection to such change.
(c)
Netting of Payments. If on any date amounts would otherwise be payable:?
(i)
in the same currency; and
(ii)
in respect of the same Transaction,
by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be
automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one
party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation
upon the party by which the larger aggregate amount would have been payable to pay to the other party the excess of
the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount and payment obligation will be determined
in respect of all amounts payable on the same date in the same currency in respect of those Transactions, regardless of
whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or
any Confirmation by specifying that “Multiple Transaction Payment Netting” applies to the Transactions identified as
being subject to the election (in which case clause (ii) above will not apply to such Transactions). If Multiple Transaction
Payment Netting is applicable to Transactions, it will apply to those Transactions with effect from the starting date
specified in the Schedule or such Confirmation, or, if a starting date is not specified in the Schedule or such Confirmation,
the starting date otherwise agreed by the parties in writing. This election may be made separately for different groups
of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments
or deliveries.
(d)
Deduction or Withholding for Tax.
Gross-Up. All payments under this Agreement will be made without any deduction or withholding
(i)
for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct
or withhold, then that party (“X”) will:?
(1)
promptly notify the other party (“Y”) of such requirement;
(2)
pay to the relevant authorities the full amount required to be deducted or withheld (including
the full amount required to be deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is
required or receiving notice that such amount has been assessed against Y;
(3)
reasonably acceptable to Y, evidencing such payment to such authorities; and
promptly forward to Y an official receipt (or a certified copy), or other documentation
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(4)
if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is
otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the
net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against
X or Y) will equal the full amount Y would have received had no such deduction or withholding been
required. However, X will not be required to pay any additional amount to Y to the extent that it
would not be required to be paid but for:?
(A)
(a)(i), 4(a)(iii) or 4(d); or
the failure by Y to comply with or perform any agreement contained in Section 4
(B)
the failure of a representation made by Y pursuant to Section 3(f) to be accurate
and true unless such failure would not have occurred but for (I) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, after a Transaction is entered into
(regardless of whether such action is taken or brought with respect to a party to this
Agreement) or (II) a Change in Tax Law.
(ii)
Liability. If:?
(1)
X is required by any applicable law, as modified by the practice of any relevant
governmental revenue authority, to make any deduction or withholding in respect of which X would
not be required to pay an additional amount to Y under Section 2(d)(i)(4);
(2)
(3)
X does not so deduct or withhold; and
a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly
pay to X the amount of such liability (including any related liability for interest, but including any related
liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)
(i), 4(a)(iii) or 4(d)).
3.
Representations
Each party makes the representations contained in Sections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) and, if specified in the
Schedule as applying, 3(g) to the other party (which representations will be deemed to be repeated by each party on
each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until
the termination of this Agreement). If any “Additional Representation” is specified in the Schedule or any Confirmation
as applying, the party or parties specified for such Additional Representation will make and, if applicable, be deemed
to repeat such Additional Representation at the time or times specified for such Additional Representation.
(a)
Basic Representations.
Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation
(i)
or incorporation and, if relevant under such laws, in good standing;
Powers. It has the power to execute this Agreement and any other documentation relating to this
(ii)
Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement
and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary
action to authorise such execution, delivery and performance;
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No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with
(iii)
any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or
other agency of government applicable to it or any of its assets or any contractual restriction binding on or
affecting it or any of its assets;
Consents. All governmental and other consents that are required to have been obtained by it with
(iv)
respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are
in full force and effect and all conditions of any such consents have been complied with; and
Obligations Binding. Its obligations under this Agreement and any Credit Support Document to
(v)
which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws
affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination
(b)
Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a
party.
Absence of Litigation. There is not pending or, to its knowledge, threatened against it, any of its Credit Support
(c)
Providers or any of its applicable Specified Entities any action, suit or proceeding at law or in equity or before any
court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform
its obligations under this Agreement or such Credit Support Document.
Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of
(d)
it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose
(e)
of this Section 3(e) is accurate and true.
Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose
(f)
of this Section 3(f) is accurate and true.
No Agency. It is entering into this Agreement, including each Transaction, as principal and not as agent of any
(g)
person or entity.
4.
Agreements
Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or
under any Credit Support Document to which it is a party:?
(a)
Furnish Specified Information. It will deliver to the other party or, in certain cases under clause (iii) below,
to such government or taxing authority as the other party reasonably directs:?
(i)
(ii)
any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;
any other documents specified in the Schedule or any Confirmation; and
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(iii)
upon reasonable demand by such other party, any form or document that may be required or reasonably
requested in writing in order to allow such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any deduction or withholding for or on
account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution
or submission of such form or document would not materially prejudice the legal or commercial position of
the party in receipt of such demand), with any such form or document to be accurate and completed in a manner
reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably
practicable.
Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of
(b)
any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary
in the future.
Comply With Laws. It will comply in all material respects with all applicable laws and orders to which it may
(c)
be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement
or any Credit Support Document to which it is a party.
Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate
(d)
and true promptly upon learning of such failure.
Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect
(e)
of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and
controlled or considered to have its seat, or where an Office through which it is acting for the purpose of this Agreement
is located (“Stamp Tax Jurisdiction”), and will indemnify the other party against any Stamp Tax levied or imposed upon
the other party or in respect of the other party’s execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.
5.
Events of Default and Termination Events
Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support
(a)
Provider of such party or any Specified Entity of such party of any of the following events constitutes (subject to
Sections 5(c) and 6(e)(iv)) an event of default (an “Event of Default”) with respect to such party:?
Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement
(i)
or delivery under Section 2(a)(i) or 9(h)(i)(2) or (4) required to be made by it if such failure is not remedied
on or before the first Local Business Day in the case of any such payment or the first Local Delivery Day in
the case of any such delivery after, in each case, notice of such failure is given to the party;
(ii)
Breach of Agreement; Repudiation of Agreement.
(1)
Failure by the party to comply with or perform any agreement or obligation (other than an
obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 9(h)(i)(2)
or (4) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i),
4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement
if such failure is not remedied within 30 days after notice of such failure is given to the party; or
(2)
validity of, this Master Agreement, any Confirmation executed and delivered by that party or any
the party disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the
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Transaction evidenced by such a Confirmation (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(iii)
Credit Support Default.
(1)
Failure by the party or any Credit Support Provider of such party to comply with or perform
any agreement or obligation to be complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any applicable grace period has elapsed;
(2)
the expiration or termination of such Credit Support Document or the failing or ceasing of
such Credit Support Document, or any security interest granted by such party or such Credit Support
Provider to the other party pursuant to any such Credit Support Document, to be in full force and
effect for the purpose of this Agreement (in each case other than in accordance with its terms) prior
to the satisfaction of all obligations of such party under each Transaction to which such Credit Support
Document relates without the written consent of the other party; or
(3)
the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in
whole or in part, or challenges the validity of, such Credit Support Document (or such action is taken
by any person or entity appointed or empowered to operate it or act on its behalf);
Misrepresentation. A representation (other than a representation under Section 3(e) or 3(f))
(iv)
made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider
of such party in this Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have been made or repeated;
Default Under Specified Transaction. The party, any Credit Support Provider of such party or any
(v)
applicable Specified Entity of such party:?
(1)
defaults (other than by failing to make a delivery) under a Specified Transaction or any
credit support arrangement relating to a Specified Transaction and, after giving effect to any applicable
notice requirement or grace period, such default results in a liquidation of, an acceleration of
obligations under, or an early termination of, that Specified Transaction;
(2)
defaults, after giving effect to any applicable notice requirement or grace period, in making
any payment due on the last payment or exchange date of, or any payment on early termination of,
a Specified Transaction (or, if there is no applicable notice requirement or grace period, such default
continues for at least one Local Business Day);
(3)
defaults in making any delivery due under (including any delivery due on the last delivery
or exchange date of) a Specified Transaction or any credit support arrangement relating to a Specified
Transaction and, after giving effect to any applicable notice requirement or grace period, such default
results in a liquidation of, an acceleration of obligations under, or an early termination of, all
transactions outstanding under the documentation applicable to that Specified Transaction; or
disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of,
(4)
a Specified Transaction or any credit support arrangement relating to a Specified Transaction that is,
in either case, confirmed or evidenced by a document or other confirming evidence executed and
delivered by that party, Credit Support Provider or Specified Entity (or such action is taken by any
person or entity appointed or empowered to operate it or act on its behalf);
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Cross-Default. If “Cross-Default” is specified in the Schedule as applying to the party, the occurrence
(vi)
or existence of:?
(1)
a default, event of default or other similar condition or event (however described) in respect
of such party, any Credit Support Provider of such party or any applicable Specified Entity of such
party under one or more agreements or instruments relating to Specified Indebtedness of any of them
(individually or collectively) where the aggregate principal amount of such agreements or instruments,
either alone or together with the amount, if any, referred to in clause (2) below, is not less than the
applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified
Indebtedness becoming, or becoming capable at such time of being declared, due and payable under
such agreements or instruments before it would otherwise have been due and payable; or
(2)
a default by such party, such Credit Support Provider or such Specified Entity (individually
or collectively) in making one or more payments under such agreements or instruments on the due
date for payment (after giving effect to any applicable notice requirement or grace period) in an
aggregate amount, either alone or together with the amount, if any, referred to in clause (1) above,
of not less than the applicable Threshold Amount;
Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity
(vii)
of such party:?
(1)
is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes
insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its
debts as they become due; (3) makes a general assignment, arrangement or composition with or for
the benefit of its creditors; (4)(A) institutes or has instituted against it, by a regulator, supervisor or
any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the
jurisdiction of its incorporation or organisation or the jurisdiction of its head or home office, a
proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy
or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its
winding-up or liquidation by it or such regulator, supervisor or similar official, or (B) has instituted
against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented
for its winding-up or liquidation, and such proceeding or petition is instituted or presented by a person
or entity not described in clause (A) above and either (I) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation
or (II) is not dismissed, discharged, stayed or restrained in each case within 15 days of the institution
or presentation thereof; (5) has a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes
subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee,
custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party
take possession of all or substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or against all or substantially all its
assets and such secured party maintains possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 15 days thereafter; (8) causes or is subject to any event with
respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of
the events specified in clauses (1) to (7) above (inclusive); or (9) takes any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or
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(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates
or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, or reorganises,
reincorporates or reconstitutes into or as, another entity and, at the time of such consolidation, amalgamation,
merger, transfer, reorganisation, reincorporation or reconstitution:?
(1)
the resulting, surviving or transferee entity fails to assume all the obligations of such party
or such Credit Support Provider under this Agreement or any Credit Support Document to which it
or its predecessor was a party; or
(2)
the benefits of any Credit Support Document fail to extend (without the consent of the other
party) to the performance by such resulting, surviving or transferee entity of its obligations under
this Agreement.
Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support
(b)
Provider of such party or any Specified Entity of such party of any event specified below constitutes (subject to Section
5(c)) an Illegality if the event is specified in clause (i) below, a Force Majeure Event if the event is specified in clause
(ii) below, a Tax Event if the event is specified in clause (iii) below, a Tax Event Upon Merger if the event is specified
in clause (iv) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant
to clause (v) below or an Additional Termination Event if the event is specified pursuant to clause (vi) below:?
Illegality. After giving effect to any applicable provision, disruption fallback or remedy specified in,
(i)
or pursuant to, the relevant Confirmation or elsewhere in this Agreement, due to an event or circumstance
(other than any action taken by a party or, if applicable, any Credit Support Provider of such party) occurring
after a Transaction is entered into, it becomes unlawful under any applicable law (including without limitation
the laws of any country in which payment, delivery or compliance is required by either party or any Credit
Support Provider, as the case may be), on any day, or it would be unlawful if the relevant payment, delivery
or compliance were required on that day (in each case, other than as a result of a breach by the party of Section
4(b)):?
(1)
for the Office through which such party (which will be the Affected Party) makes and receives
payments or deliveries with respect to such Transaction to perform any absolute or contingent
obligation to make a payment or delivery in respect of such Transaction, to receive a payment or
delivery in respect of such Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
(2)
for such party or any Credit Support Provider of such party (which will be the Affected
Party) to perform any absolute or contingent obligation to make a payment or delivery which such
party or Credit Support Provider has under any Credit Support Document relating to such Transaction,
to receive a payment or delivery under such Credit Support Document or to comply with any other
material provision of such Credit Support Document;
Force Majeure Event. After giving effect to any applicable provision, disruption fallback or remedy
(ii)
specified in, or pursuant to, the relevant Confirmation or elsewhere in this Agreement, by reason of force
majeure or act of state occurring after a Transaction is entered into, on any day:?
(1)
the Office through which such party (which will be the Affected Party) makes and receives
payments or deliveries with respect to such Transaction is prevented from performing any absolute
or contingent obligation to make a payment or delivery in respect of such Transaction, from receiving
a payment or delivery in respect of such Transaction or from complying with any other material
provision of this Agreement relating to such Transaction (or would be so prevented if such payment,
delivery or compliance were required on that day), or it becomes impossible or
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impracticable for such Office so to perform, receive or comply (or it would be impossible or
impracticable for such Office so to perform, receive or comply if such payment, delivery or compliance
were required on that day); or
(2)
such party or any Credit Support Provider of such party (which will be the Affected Party)
is prevented from performing any absolute or contingent obligation to make a payment or delivery
which such party or Credit Support Provider has under any Credit Support Document relating to such
Transaction, from receiving a payment or delivery under such Credit Support Document or from
complying with any other material provision of such Credit Support Document (or would be so
prevented if such payment, delivery or compliance were required on that day), or it becomes
impossible or impracticable for such party or Credit Support Provider so to perform, receive or comply
(or it would be impossible or impracticable for such party or Credit Support Provider so to perform,
receive or comply if such payment, delivery or compliance were required on that day),
so long as the force majeure or act of state is beyond the control of such Office, such party or such Credit
Support Provider, as appropriate, and such Office, party or Credit Support Provider could not, after using all
reasonable efforts (which will not require such party or Credit Support Provider to incur a loss, other than
immaterial, incidental expenses), overcome such prevention, impossibility or impracticability;
Tax Event. Due to (1) any action taken by a taxing authority, or brought in a court of competent
(iii)
jurisdiction, after a Transaction is entered into (regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (2) a Change in Tax Law, the party (which will be the Affected Party)
will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Settlement Date (A) be
required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)
(i)(4) (except in respect of interest under Section 9(h)) or (B) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 9
(h)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than
by reason of Section 2(d)(i)(4)(A) or (B));
Tax Event Upon Merger. The party (the “Burdened Party”) on the next succeeding Scheduled
(iv)
Settlement Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax
under Section 2(d)(i)(4) (except in respect of interest under Section 9(h)) or (2) receive a payment from which
an amount has been deducted or withheld for or on account of any Tax in respect of which the other party is
not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case
as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or
substantially all its assets (or any substantial part of the assets comprising the business conducted by it as of
the date of this Master Agreement) to, or reorganising, reincorporating or reconstituting into or as, another
entity (which will be the Affected Party) where such action does not constitute a Merger Without Assumption;
Credit Event Upon Merger. If “Credit Event Upon Merger” is specified in the Schedule as applying
(v)
to the party, a Designated Event (as defined below) occurs with respect to such party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (in each case, “X”) and such Designated
Event does not constitute a Merger Without Assumption, and the creditworthiness of X or, if applicable, the
successor, surviving or transferee entity of X, after taking into account any applicable Credit Support Document,
is materially weaker immediately after the occurrence of such Designated Event than that of X immediately
prior to the occurrence of such Designated Event (and, in any such event, such party or its successor, surviving
or transferee entity, as appropriate, will be the Affected Party). A “Designated Event” with respect to X means
that:?
(1)
X consolidates or amalgamates with, or merges with or into, or transfers all or substantially
all its assets (or any substantial part of the assets comprising the business conducted by X as of the
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date of this Master Agreement) to, or reorganises, reincorporates or reconstitutes into or as, another
entity;
(2)
any person, related group of persons or entity acquires directly or indirectly the beneficial
ownership of (A) equity securities having the power to elect a majority of the board of directors (or
its equivalent) of X or (B) any other ownership interest enabling it to exercise control of X; or
(3)
X effects any substantial change in its capital structure by means of the issuance, incurrence
or guarantee of debt or the issuance of (A) preferred stock or other securities convertible into or
exchangeable for debt or preferred stock or (B) in the case of entities other than corporations, any
other form of ownership interest; or
Additional Termination Event. If any “Additional Termination Event” is specified in the Schedule
(vi)
or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or
Affected Parties will be as specified for such Additional Termination Event in the Schedule or such
Confirmation).
(c)
Hierarchy of Events.
An event or circumstance that constitutes or gives rise to an Illegality or a Force Majeure Event will
(i)
not, for so long as that is the case, also constitute or give rise to an Event of Default under Section 5(a)(i), 5
(a)(ii)(1) or 5(a)(iii)(1) insofar as such event or circumstance relates to the failure to make any payment or
delivery or a failure to comply with any other material provision of this Agreement or a Credit Support
Document, as the case may be.
(ii)
Except in circumstances contemplated by clause (i) above, if an event or circumstance which would
otherwise constitute or give rise to an Illegality or a Force Majeure Event also constitutes an Event of Default
or any other Termination Event, it will be treated as an Event of Default or such other Termination Event, as
the case may be, and will not constitute or give rise to an Illegality or a Force Majeure Event.
(iii)
If an event or circumstance which would otherwise constitute or give rise to a Force Majeure Event
also constitutes an Illegality, it will be treated as an Illegality, except as described in clause (ii) above, and not
a Force Majeure Event.
Deferral of Payments and Deliveries During Waiting Period. If an Illegality or a Force Majeure Event has
(d)
occurred and is continuing with respect to a Transaction, each payment or delivery which would otherwise be required
to be made under that Transaction will be deferred to, and will not be due until:?
(i)
the first Local Business Day or, in the case of a delivery, the first Local Delivery Day (or the first
day that would have been a Local Business Day or Local Delivery Day, as appropriate, but for the occurrence
of the event or circumstance constituting or giving rise to that Illegality or Force Majeure Event) following
the end of any applicable Waiting Period in respect of that Illegality or Force Majeure Event, as the case may
be; or
if earlier, the date on which the event or circumstance constituting or giving rise to that Illegality or
(ii)
Force Majeure Event ceases to exist or, if such date is not a Local Business Day or, in the case of a delivery,
a Local Delivery Day, the first following day that is a Local Business Day or Local Delivery Day, as appropriate.
Inability of Head or Home Office to Perform Obligations of Branch. If (i) an Illegality or a Force Majeure
(e)
Event occurs under Section 5(b)(i)(1) or 5(b)(ii)(1) and the relevant Office is not the Affected Party’s head or home
office, (ii) Section 10(a) applies, (iii) the other party seeks performance of the relevant obligation or
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compliance with the relevant provision by the Affected Party’s head or home office and (iv) the Affected Party’s head
or home office fails so to perform or comply due to the occurrence of an event or circumstance which would, if that
head or home office were the Office through which the Affected Party makes and receives payments and deliveries
with respect to the relevant Transaction, constitute or give rise to an Illegality or a Force Majeure Event, and such
failure would otherwise constitute an Event of Default under Section 5(a)(i)or 5(a)(iii)(1) with respect to such party,
then, for so long as the relevant event or circumstance continues to exist with respect to both the Office referred to in
Section 5(b)(i)(1) or 5(b)(ii)(1), as the case may be, and the Affected Party’s head or home office, such failure will not
constitute an Event of Default under Section 5(a)(i) or 5(a)(iii)(1).
6.
Early Termination; Close-Out Netting
Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party
(a)
(the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not
more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier
than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however,
“Automatic Early Termination” is specified in the Schedule as applying to a party, then an Early Termination Date in
respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time
immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the
occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous
thereto, (8).
(b)
Right to Terminate Following Termination Event.
Notice. If a Termination Event other than a Force Majeure Event occurs, an Affected Party will,
(i)
promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event
and each Affected Transaction, and will also give the other party such other information about that Termination
Event as the other party may reasonably require. If a Force Majeure Event occurs, each party will, promptly
upon becoming aware of it, use all reasonable efforts to notify the other party, specifying the nature of that
Force Majeure Event, and will also give the other party such other information about that Force Majeure Event
as the other party may reasonably require.
Transfer to Avoid Termination Event. If a Tax Event occurs and there is only one Affected Party, or
(ii)
if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as
a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts
(which will not require such party to incur a loss, other than immaterial, incidental expenses) to transfer within
20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect
of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to
exist.
If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within
such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is
given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written
consent of the other party, which consent will not be withheld if such other party’s policies in effect at such
time would permit it to enter into transactions with the transferee on the terms proposed.
Two Affected Parties. If a Tax Event occurs and there are two Affected Parties, each party will use
(iii)
all reasonable efforts to reach agreement within 30 days after notice of such occurrence is given under Section
6(b)(i) to avoid that Termination Event.
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(iv)
Right to Terminate.
(1)
If:?
(A)
a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case
may be, has not been effected with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(B)
Event Upon Merger occurs and the Burdened Party is not the Affected Party,
a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax
the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax
Event or an Additional Termination Event if there are two Affected Parties, or the Non-affected Party
in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, if the relevant Termination Event is then continuing, by not more than 20 days
notice to the other party, designate a day not earlier than the day such notice is effective as an Early
Termination Date in respect of all Affected Transactions.
(2)
and any applicable Waiting Period has expired:?
If at any time an Illegality or a Force Majeure Event has occurred and is then continuing
(A)
Subject to clause (B) below, either party may, by not more than 20 days notice to
the other party, designate (I) a day not earlier than the day on which such notice becomes
effective as an Early Termination Date in respect of all Affected Transactions or (II) by
specifying in that notice the Affected Transactions in respect of which it is designating the
relevant day as an Early Termination Date, a day not earlier than two Local Business Days
following the day on which such notice becomes effective as an Early Termination Date in
respect of less than all Affected Transactions. Upon receipt of a notice designating an Early
Termination Date in respect of less than all Affected Transactions, the other party may, by
notice to the designating party, if such notice is effective on or before the day so designated,
designate that same day as an Early Termination Date in respect of any or all other Affected
Transactions.
(B)
An Affected Party (if the Illegality or Force Majeure Event relates to performance
by such party or any Credit Support Provider of such party of an obligation to make any
payment or delivery under, or to compliance with any other material provision of, the relevant
Credit Support Document) will only have the right to designate an Early Termination Date
under Section 6(b)(iv)(2)(A) as a result of an Illegality under Section 5(b)(i)(2) or a Force
Majeure Event under Section 5(b)(ii)(2) following the prior designation by the other party
of an Early Termination Date, pursuant to Section 6(b)(iv)(2)(A), in respect of less than all
Affected Transactions.
(c)
Effect of Designation.
If notice designating an Early Termination Date is given under Section 6(a) or 6(b), the Early
(i)
Termination Date will occur on the date so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii)
Upon the occurrence or effective designation of an Early Termination Date, no further payments or
deliveries under Section 2(a)(i) or 9(h)(i) in respect of the Terminated Transactions will be required to be
made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect
of an Early Termination Date will be determined pursuant to Sections 6(e) and 9(h)(ii).
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(d)
Calculations; Payment Date.
Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination
(i)
Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide
to the other party a statement (1) showing, in reasonable detail, such calculations (including any quotations,
market data or information from internal sources used in making such calculations), (2) specifying (except
where there are two Affected Parties) any Early Termination Amount payable and (3) giving details of the
relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from
the source of a quotation or market data obtained in determining a Close-out Amount, the records of the party
obtaining such quotation or market data will be conclusive evidence of the existence and accuracy of such
quotation or market data.
Payment Date. An Early Termination Amount due in respect of any Early Termination Date will,
(ii)
together with any amount of interest payable pursuant to Section 9(h)(ii)(2), be payable (1) on the day on
which notice of the amount payable is effective in the case of an Early Termination Date which is designated
or occurs as a result of an Event of Default and (2) on the day which is two Local Business Days after the day
on which notice of the amount payable is effective (or, if there are two Affected Parties, after the day on which
the statement provided pursuant to clause (i) above by the second party to provide such a statement is effective)
in the case of an Early Termination Date which is designated as a result of a Termination Event.
Payments on Early Termination. If an Early Termination Date occurs, the amount, if any, payable in respect
(e)
of that Early Termination Date (the “Early Termination Amount”) will be determined pursuant to this Section 6(e) and
will be subject to Section 6(f).
Events of Default. If the Early Termination Date results from an Event of Default, the Early
(i)
Termination Amount will be an amount equal to (1) the sum of (A) the Termination Currency Equivalent of
the Close-out Amount or Close-out Amounts (whether positive or negative) determined by the Non-defaulting
Party for each Terminated Transaction or group of Terminated Transactions, as the case may be, and (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (2) the
Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If the Early
Termination Amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is
a negative number, the Non-defaulting Party will pay the absolute value of the Early Termination Amount to
the Defaulting Party.
(ii)
Termination Events. If the Early Termination Date results from a Termination Event:?
One Affected Party. Subject to clause (3) below, if there is one Affected Party, the Early
(1)
Termination Amount will be determined in accordance with Section 6(e)(i), except that references
to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected
Party and to the Non-affected Party, respectively.
Two Affected Parties. Subject to clause (3) below, if there are two Affected Parties, each
(2)
party will determine an amount equal to the Termination Currency Equivalent of the sum of the Close-
out Amount or Close-out Amounts (whether positive or negative) for each Terminated Transaction
or group of Terminated Transactions, as the case may be, and the Early Termination Amount will be
an amount equal to (A) the sum of (I) one-half of the difference between the higher amount so
determined (by party “X”) and the lower amount so determined (by party “Y”) and (II) the Termination
Currency Equivalent of the Unpaid Amounts owing to X less (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to Y. If the Early Termination Amount is a positive number, Y will
pay it to X; if it is a negative number, X will pay the absolute value of the Early Termination Amount
to Y.
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Mid-Market Events. If that Termination Event is an Illegality or a Force Majeure Event, then
(3)
the Early Termination Amount will be determined in accordance with clause (1) or (2) above, as
appropriate, except that, for the purpose of determining a Close-out Amount or Close-out Amounts,
the Determining Party will:?
(A)
if obtaining quotations from one or more third parties (or from any of the
Determining Party’s Affiliates), ask each third party or Affiliate (I) not to take account of
the current creditworthiness of the Determining Party or any existing Credit Support
Document and (II) to provide mid-market quotations; and
(B)
the Determining Party.
in any other case, use mid-market values without regard to the creditworthiness of
Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs
(iii)
because Automatic Early Termination applies in respect of a party, the Early Termination Amount
will be subject to such adjustments as are appropriate and permitted by applicable law to reflect any
payments or deliveries made by one party to the other under this Agreement (and retained by such
other party) during the period from the relevant Early Termination Date to the date for payment
determined under Section 6(d)(ii).
Adjustment for Illegality or Force Majeure Event. The failure by a party or any Credit
(iv)
Support Provider of such party to pay, when due, any Early Termination Amount will not constitute
an Event of Default under Section 5(a)(i) or 5(a)(iii)(1) if such failure is due to the occurrence of an
event or circumstance which would, if it occurred with respect to payment, delivery or compliance
related to a Transaction, constitute or give rise to an Illegality or a Force Majeure Event. Such amount
will (1) accrue interest and otherwise be treated as an Unpaid Amount owing to the other party if
subsequently an Early Termination Date results from an Event of Default, a Credit Event Upon Merger
or an Additional Termination Event in respect of which all outstanding Transactions are Affected
Transactions and (2) otherwise accrue interest in accordance with Section 9(h)(ii)(2).
Pre-Estimate. The parties agree that an amount recoverable under this Section 6(e) is a
(v)
reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks, and, except as otherwise provided in this Agreement, neither
party will be entitled to recover any additional damages as a consequence of the termination of the
Terminated Transactions.
Set-Off. Any Early Termination Amount payable to one party (the “Payee”) by the other party (the “Payer”),
(f)
in circumstances where there is a Defaulting Party or where there is one Affected Party in the case where either a Credit
Event Upon Merger has occurred or any other Termination Event in respect of which all outstanding Transactions are
Affected Transactions has occurred, will, at the option of the Non-defaulting Party or the Non-affected Party, as the
case may be (“X”) (and without prior notice to the Defaulting Party or the Affected Party, as the case may be), be
reduced by its set-off against any other amounts (“Other Amounts”) payable by the Payee to the Payer (whether or not
arising under this Agreement, matured or contingent and irrespective of the currency, place of payment or place of
booking of the obligation). To the extent that any Other Amounts are so set off, those Other Amounts will be discharged
promptly and in all respects. X will give notice to the other party of any set-off effected under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other Amounts (or the relevant portion of such amounts)
may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party
would be able, in good faith and using commercially reasonable procedures, to purchase the relevant amount of such
currency.
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If an obligation is unascertained, X may in good faith estimate that obligation and set off in respect of the estimate,
subject to the relevant party accounting to the other when the obligation is ascertained.
Nothing in this Section 6(f) will be effective to create a charge or other security interest. This Section 6(f) will be
without prejudice and in addition to any right of set-off, offset, combination of accounts, lien, right of retention or
withholding or similar right or requirement to which any party is at any time otherwise entitled or subject (whether by
operation of law, contract or otherwise).
7.
Transfer
Subject to Section 6(b)(ii) and to the extent permitted by applicable law, neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party, except that:?
(a)
a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or
merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other
right or remedy under this Agreement); and
(b)
a party may make such a transfer of all or any part of its interest in any Early Termination Amount payable to
it by a Defaulting Party, together with any amounts payable on or with respect to that interest and any other rights
associated with that interest pursuant to Sections 8, 9(h) and 11.
Any purported transfer that is not in compliance with this Section 7 will be void.
8.
Contractual Currency
Payment in the Contractual Currency. Each payment under this Agreement will be made in the relevant
(a)
currency specified in this Agreement for that payment (the “Contractual Currency”). To the extent permitted by
applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged
or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results
in the actual receipt by the party to which payment is owed, acting in good faith and using commercially reasonable
procedures in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual
Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency
so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required
to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the
Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual
Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party
receiving the payment will refund promptly the amount of such excess.
Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other
(b)
than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii)
for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a
judgment or order of another court for the payment of any amount described in clause (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or
order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency
received by such party as a consequence of sums paid in such other currency and will refund promptly to the other
party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other
currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the
Contractual Currency is converted into the currency of the judgment or order for the purpose of such judgment or order
and the rate of exchange at which such party is able, acting in good faith and using
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commercially reasonable procedures in converting the currency received into the Contractual Currency, to purchase
the Contractual Currency with the amount of the currency of the judgment or order actually received by such party.
Separate Indemnities. To the extent permitted by applicable law, the indemnities in this Section 8 constitute
(c)
separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and
independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment
is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable
in respect of this Agreement.
Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would
(d)
have suffered a loss had an actual exchange or purchase been made.
9.
Miscellaneous
Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with
(a)
respect to its subject matter. Each of the parties acknowledges that in entering into this Agreement it has not relied on
any oral or written representation, warranty or other assurance (except as provided for or referred to in this Agreement)
and waives all rights and remedies which might otherwise be available to it in respect thereof, except that nothing in
this Agreement will limit or exclude any liability of a party for fraud.
Amendments. An amendment, modification or waiver in respect of this Agreement will only be effective if
(b)
in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed
by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system.
Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under
(c)
this Agreement will survive the termination of any Transaction.
Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges
(d)
provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided
by law.
(e)
Counterparts and Confirmations.
(i)
This Agreement (and each amendment, modification and waiver in respect of it) may be executed
and delivered in counterparts (including by facsimile transmission and by electronic messaging system), each
of which will be deemed an original.
(ii)
The parties intend that they are legally bound by the terms of each Transaction from the moment they
agree to those terms (whether orally or otherwise). A Confirmation will be entered into as soon as practicable
and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an
exchange of telexes, by an exchange of electronic messages on an electronic messaging system or by an
exchange of e-mails, which in each case will be sufficient for all purposes to evidence a binding supplement
to this Agreement. The parties will specify therein or through another effective means that any such counterpart,
telex, electronic message or e-mail constitutes a Confirmation.
No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement
(f)
will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be
presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other
right, power or privilege.
Headings. The headings used in this Agreement are for convenience of reference only and are not to affect
(g)
the construction of or to be taken into consideration in interpreting this Agreement.
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(h)
Interest and Compensation.
(i)
Date in respect of the relevant Transaction:?
Prior to Early Termination. Prior to the occurrence or effective designation of an Early Termination
Interest on Defaulted Payments. If a party defaults in the performance of any payment
(1)
obligation, it will, to the extent permitted by applicable law and subject to Section 6(c), pay interest
(before as well as after judgment) on the overdue amount to the other party on demand in the same
currency as the overdue amount, for the period from (and including) the original due date for payment
to (but excluding) the date of actual payment (and excluding any period in respect of which interest
or compensation in respect of the overdue amount is due pursuant to clause (3)(B) or (C) below), at
the Default Rate.
Compensation for Defaulted Deliveries. If a party defaults in the performance of any
(2)
obligation required to be settled by delivery, it will on demand (A) compensate the other party to the
extent provided for in the relevant Confirmation or elsewhere in this Agreement and (B) unless
otherwise provided in the relevant Confirmation or elsewhere in this Agreement, to the extent
permitted by applicable law and subject to Section 6(c), pay to the other party interest (before as well
as after judgment) on an amount equal to the fair market value of that which was required to be
delivered in the same currency as that amount, for the period from (and including) the originally
scheduled date for delivery to (but excluding) the date of actual delivery (and excluding any period
in respect of which interest or compensation in respect of that amount is due pursuant to clause (4)
below), at the Default Rate. The fair market value of any obligation referred to above will be
determined as of the originally scheduled date for delivery, in good faith and using commercially
reasonable procedures, by the party that was entitled to take delivery.
(3)
Interest on Deferred Payments. If:?
(A)
a party does not pay any amount that, but for Section 2(a)(iii), would have been
payable, it will, to the extent permitted by applicable law and subject to Section 6(c) and
clauses (B) and (C) below, pay interest (before as well as after judgment) on that amount to
the other party on demand (after such amount becomes payable) in the same currency as
that amount, for the period from (and including) the date the amount would, but for Section
2(a)(iii), have been payable to (but excluding) the date the amount actually becomes payable,
at the Applicable Deferral Rate;
a payment is deferred pursuant to Section 5(d), the party which would otherwise
(B)
have been required to make that payment will, to the extent permitted by applicable law,
subject to Section 6(c) and for so long as no Event of Default or Potential Event of Default
with respect to that party has occurred and is continuing, pay interest (before as well as after
judgment) on the amount of the deferred payment to the other party on demand (after such
amount becomes payable) in the same currency as the deferred payment, for the period from
(and including) the date the amount would, but for Section 5(d), have been payable to (but
excluding) the earlier of the date the payment is no longer deferred pursuant to Section 5
(d) and the date during the deferral period upon which an Event of Default or Potential Event
of Default with respect to that party occurs, at the Applicable Deferral Rate; or
(C)
a party fails to make any payment due to the occurrence of an Illegality or a Force
Majeure Event (after giving effect to any deferral period contemplated by clause (B) above),
it will, to the extent permitted by applicable law, subject to Section 6(c) and for so long as
the event or circumstance giving rise to that Illegality or Force Majeure Event
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continues and no Event of Default or Potential Event of Default with respect to that party
has occurred and is continuing, pay interest (before as well as after judgment) on the overdue
amount to the other party on demand in the same currency as the overdue amount, for the
period from (and including) the date the party fails to make the payment due to the occurrence
of the relevant Illegality or Force Majeure Event (or, if later, the date the payment is no
longer deferred pursuant to Section 5(d)) to (but excluding) the earlier of the date the event
or circumstance giving rise to that Illegality or Force Majeure Event ceases to exist and the
date during the period upon which an Event of Default or Potential Event of Default with
respect to that party occurs (and excluding any period in respect of which interest or
compensation in respect of the overdue amount is due pursuant to clause (B) above), at the
Applicable Deferral Rate.
(4)
Compensation for Deferred Deliveries. If:?
(A)
been required to be settled by delivery;
a party does not perform any obligation that, but for Section 2(a)(iii), would have
(B)
a delivery is deferred pursuant to Section 5(d); or
(C)
Majeure Event at a time when any applicable Waiting Period has expired,
a party fails to make a delivery due to the occurrence of an Illegality or a Force
the party required (or that would otherwise have been required) to make the delivery will, to the
extent permitted by applicable law and subject to Section 6(c), compensate and pay interest to the
other party on demand (after, in the case of clauses (A) and (B) above, such delivery is required) if
and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.
Early Termination. Upon the occurrence or effective designation of an Early Termination Date in
(ii)
respect of a Transaction:?
Unpaid Amounts. For the purpose of determining an Unpaid Amount in respect of the relevant
(1)
Transaction, and to the extent permitted by applicable law, interest will accrue on the amount of any
payment obligation or the amount equal to the fair market value of any obligation required to be
settled by delivery included in such determination in the same currency as that amount, for the period
from (and including) the date the relevant obligation was (or would have been but for Section 2(a)
(iii) or 5(d)) required to have been performed to (but excluding) the relevant Early Termination Date,
at the Applicable Close-out Rate.
Interest on Early Termination Amounts. If an Early Termination Amount is due in respect
(2)
of such Early Termination Date, that amount will, to the extent permitted by applicable law, be paid
together with interest (before as well as after judgment) on that amount in the Termination Currency,
for the period from (and including) such Early Termination Date to (but excluding) the date the
amount is paid, at the Applicable Close-out Rate.
Interest Calculation. Any interest pursuant to this Section 9(h) will be calculated on the basis of
(iii)
daily compounding and the actual number of days elapsed.
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10.
Offices; Multibranch Parties
If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an
(a)
Office other than its head or home office represents to and agrees with the other party that, notwithstanding the place
of booking or its jurisdiction of incorporation or organisation, its obligations are the same in terms of recourse against
it as if it had entered into the Transaction through its head or home office, except that a party will not have recourse to
the head or home office of the other party in respect of any payment or delivery deferred pursuant to Section 5(d) for
so long as the payment or delivery is so deferred. This representation and agreement will be deemed to be repeated by
each party on each date on which the parties enter into a Transaction.
If a party is specified as a Multibranch Party in the Schedule, such party may, subject to clause (c) below, enter
(b)
into a Transaction through, book a Transaction in and make and receive payments and deliveries with respect to a
Transaction through any Office listed in respect of that party in the Schedule (but not any other Office unless otherwise
agreed by the parties in writing).
(c)
The Office through which a party enters into a Transaction will be the Office specified for that party in the
relevant Confirmation or as otherwise agreed by the parties in writing, and, if an Office for that party is not specified
in the Confirmation or otherwise agreed by the parties in writing, its head or home office. Unless the parties otherwise
agree in writing, the Office through which a party enters into a Transaction will also be the Office in which it books
the Transaction and the Office through which it makes and receives payments and deliveries with respect to the
Transaction. Subject to Section 6(b)(ii), neither party may change the Office in which it books the Transaction or the
Office through which it makes and receives payments or deliveries with respect to a Transaction without the prior
written consent of the other party.
11.
Expenses
A Defaulting Party will on demand indemnify and hold harmless the other party for and against all reasonable out-of-
pocket expenses, including legal fees, execution fees and Stamp Tax, incurred by such other party by reason of the
enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting
Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.
12.
Notices
Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner
(a)
described below (except that a notice or other communication under Section 5 or 6 may not be given by electronic
messaging system or e-mail) to the address or number or in accordance with the electronic messaging system or e-mail
details provided (see the Schedule) and will be deemed effective as indicated:?
(i)
if in writing and delivered in person or by courier, on the date it is delivered;
(ii)
if sent by telex, on the date the recipient’s answerback is received;
(iii)
if sent by facsimile transmission, on the date it is received by a responsible employee of the recipient
in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met
by a transmission report generated by the sender’s facsimile machine);
(iv)
on the date it is delivered or its delivery is attempted;
if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested),
(v)
if sent by electronic messaging system, on the date it is received; or
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(vi)
if sent by e-mail, on the date it is delivered,
unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that
communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business
Day, in which case that communication will be deemed given and effective on the first following day that is a Local
Business Day.
Change of Details. Either party may by notice to the other change the address, telex or facsimile number or
(b)
electronic messaging system or e-mail details at which notices or other communications are to be given to it.
13.
Governing Law and Jurisdiction
Governing Law. This Agreement will be governed by and construed in accordance with the law specified in
(a)
the Schedule.
Jurisdiction. With respect to any suit, action or proceedings relating to any dispute arising out of or in
(b)
connection with this Agreement (“Proceedings”), each party irrevocably:?
(i)
submits:?
(1)
if this Agreement is expressed to be governed by English law, to (A) the non-exclusive
jurisdiction of the English courts if the Proceedings do not involve a Convention Court and (B) the
exclusive jurisdiction of the English courts if the Proceedings do involve a Convention Court; or
(2)
if this Agreement is expressed to be governed by the laws of the State of New York, to the
non-exclusive jurisdiction of the courts of the State of New York and the United States District Court
located in the Borough of Manhattan in New York City;
(ii)
waives any objection which it may have at any time to the laying of venue of any Proceedings brought
in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction
over such party; and
(iii)
jurisdictions will not preclude the bringing of Proceedings in any other jurisdiction.
agrees, to the extent permitted by applicable law, that the bringing of Proceedings in any one or more
Service of Process. Each party irrevocably appoints the Process Agent, if any, specified opposite its name in
(c)
the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party’s
Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a
substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the
manner provided for notices in Section 12(a)(i), 12(a)(iii) or 12(a)(iv). Nothing in this Agreement will affect the right
of either party to serve process in any other manner permitted by applicable law.
Waiver of Immunities. Each party irrevocably waives, to the extent permitted by applicable law, with respect
(d)
to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty
or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction or order for specific
performance or recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution
or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in
the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim
any such immunity in any Proceedings.
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14.
Definitions
As used in this Agreement:?
“Additional Representation” has the meaning specified in Section 3.
“Additional Termination Event” has the meaning specified in Section 5(b).
“Affected Party” has the meaning specified in Section 5(b).
“Affected Transactions” means (a) with respect to any Termination Event consisting of an Illegality, Force Majeure
Event, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event
(which, in the case of an Illegality under Section 5(b)(i)(2) or a Force Majeure Event under Section 5(b)(ii)(2), means
all Transactions unless the relevant Credit Support Document references only certain Transactions, in which case those
Transactions and, if the relevant Credit Support Document constitutes a Confirmation for a Transaction, that Transaction)
and (b) with respect to any other Termination Event, all Transactions.
“Affiliate” means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the
person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common
control with the person. For this purpose, “control” of any entity or person means ownership of a majority of the voting
power of the entity or person.
“Agreement” has the meaning specified in Section 1(c).
“Applicable Close-out Rate” means:?
(a)
in respect of the determination of an Unpaid Amount:?
(i)
by a Defaulting Party, the Default Rate;
in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
(ii)
by a Non-defaulting Party, the Non-default Rate;
in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
(iii)
long as the deferral period continues, the Applicable Deferral Rate; and
in respect of obligations deferred pursuant to Section 5(d), if there is no Defaulting Party and for so
(iv)
pursuant to clause (iii) above), the Applicable Deferral Rate; and
in all other cases following the occurrence of a Termination Event (except where interest accrues
(b)
in respect of an Early Termination Amount:?
(i)
(determined in accordance with Section 6(d)(ii)) on which that amount is payable:?
for the period from (and including) the relevant Early Termination Date to (but excluding) the date
(1)
(2)
and
(3)
if the Early Termination Amount is payable by a Defaulting Party, the Default Rate;
if the Early Termination Amount is payable by a Non-defaulting Party, the Non-default Rate;
in all other cases, the Applicable Deferral Rate; and
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(ii)
that amount is payable to (but excluding) the date of actual payment:?
for the period from (and including) the date (determined in accordance with Section 6(d)(ii)) on which
(1)
if a party fails to pay the Early Termination Amount due to the occurrence of an event or
circumstance which would, if it occurred with respect to a payment or delivery under a Transaction,
constitute or give rise to an Illegality or a Force Majeure Event, and for so long as the Early Termination
Amount remains unpaid due to the continuing existence of such event or circumstance, the Applicable
Deferral Rate;
(2)
in respect of which clause (1) above applies), the Default Rate;
if the Early Termination Amount is payable by a Defaulting Party (but excluding any period
(3)
period in respect of which clause (1) above applies), the Non-default Rate; and
if the Early Termination Amount is payable by a Non-defaulting Party (but excluding any
(4)
in all other cases, the Termination Rate.
“Applicable Deferral Rate” means:?
for the purpose of Section 9(h)(i)(3)(A), the rate certified by the relevant payer to be a rate offered to the payer
(a)
by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be selected
in good faith by the payer for the purpose of obtaining a representative rate that will reasonably reflect conditions
prevailing at the time in that relevant market;
(b)
for purposes of Section 9(h)(i)(3)(B) and clause (a)(iii) of the definition of Applicable Close-out Rate, the rate
certified by the relevant payer to be a rate offered to prime banks by a major bank in a relevant interbank market for
overnight deposits in the applicable currency, such bank to be selected in good faith by the payer after consultation
with the other party, if practicable, for the purpose of obtaining a representative rate that will reasonably reflect conditions
prevailing at the time in that relevant market; and
(c)
for purposes of Section 9(h)(i)(3)(C) and clauses (a)(iv), (b)(i)(3) and (b)(ii)(1) of the definition of Applicable
Close-out Rate, a rate equal to the arithmetic mean of the rate determined pursuant to clause (a) above and a rate per
annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were
to fund or of funding the relevant amount.
“Automatic Early Termination” has the meaning specified in Section 6(a).
“Burdened Party” has the meaning specified in Section 5(b)(iv).
“Change in Tax Law” means the enactment, promulgation, execution or ratification of, or any change in or amendment
to, any law (or in the application or official interpretation of any law) that occurs after the parties enter into the relevant
Transaction.
“Close-out Amount” means, with respect to each Terminated Transaction or each group of Terminated Transactions
and a Determining Party, the amount of the losses or costs of the Determining Party that are or would be incurred under
then prevailing circumstances (expressed as a positive number) or gains of the Determining Party that are or would be
realised under then prevailing circumstances (expressed as a negative number) in replacing, or in providing for the
Determining Party the economic equivalent of, (a) the material terms of that Terminated Transaction or group of
Terminated Transactions, including the payments and deliveries by the parties under Section 2(a)(i) in respect of that
Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early
Termination Date, have been required after that date (assuming satisfaction of the conditions precedent in
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Section 2(a)(iii)) and (b) the option rights of the parties in respect of that Terminated Transaction or group of Terminated
Transactions.
Any Close-out Amount will be determined by the Determining Party (or its agent), which will act in good faith and
use commercially reasonable procedures in order to produce a commercially reasonable result. The Determining Party
may determine a Close-out Amount for any group of Terminated Transactions or any individual Terminated Transaction
but, in the aggregate, for not less than all Terminated Transactions. Each Close-out Amount will be determined as of
the Early Termination Date or, if that would not be commercially reasonable, as of the date or dates following the Early
Termination Date as would be commercially reasonable.
Unpaid Amounts in respect of a Terminated Transaction or group of Terminated Transactions and legal fees and out-
of-pocket expenses referred to in Section 11 are to be excluded in all determinations of Close-out Amounts.
In determining a Close-out Amount, the Determining Party may consider any relevant information, including, without
limitation, one or more of the following types of information: ?
(i)
quotations (either firm or indicative) for replacement transactions supplied by one or more third parties that
may take into account the creditworthiness of the Determining Party at the time the quotation is provided and the terms
of any relevant documentation, including credit support documentation, between the Determining Party and the third
party providing the quotation;
(ii)
information consisting of relevant market data in the relevant market supplied by one or more third parties
including, without limitation, relevant rates, prices, yields, yield curves, volatilities, spreads, correlations or other
relevant market data in the relevant market; or
(iii)
information of the types described in clause (i) or (ii) above from internal sources (including any of the
Determining Party’s Affiliates) if that information is of the same type used by the Determining Party in the regular
course of its business for the valuation of similar transactions.
The Determining Party will consider, taking into account the standards and procedures described in this definition,
quotations pursuant to clause (i) above or relevant market data pursuant to clause (ii) above unless the Determining
Party reasonably believes in good faith that such quotations or relevant market data are not readily available or would
produce a result that would not satisfy those standards. When considering information described in clause (i), (ii) or
(iii) above, the Determining Party may include costs of funding, to the extent costs of funding are not and would not
be a component of the other information being utilised. Third parties supplying quotations pursuant to clause (i) above
or market data pursuant to clause (ii) above may include, without limitation, dealers in the relevant markets, end-users
of the relevant product, information vendors, brokers and other sources of market information.
Without duplication of amounts calculated based on information described in clause (i), (ii) or (iii) above, or other
relevant information, and when it is commercially reasonable to do so, the Determining Party may in addition consider
in calculating a Close-out Amount any loss or cost incurred in connection with its terminating, liquidating or re-
establishing any hedge related to a Terminated Transaction or group of Terminated Transactions (or any gain resulting
from any of them).
Commercially reasonable procedures used in determining a Close-out Amount may include the following:?
(1)
application to relevant market data from third parties pursuant to clause (ii) above or information from internal
sources pursuant to clause (iii) above of pricing or other valuation models that are, at the time of the determination of
the Close-out Amount, used by the Determining Party in the regular course of its business in pricing or valuing
transactions between the Determining Party and unrelated third parties that are similar to the Terminated Transaction
or group of Terminated Transactions; and
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(2)
application of different valuation methods to Terminated Transactions or groups of Terminated Transactions
depending on the type, complexity, size or number of the Terminated Transactions or group of Terminated Transactions.
“Confirmation” has the meaning specified in the preamble.
“consent” includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control
consent.
“Contractual Currency” has the meaning specified in Section 8(a).
“Convention Court” means any court which is bound to apply to the Proceedings either Article 17 of the 1968 Brussels
Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters or Article 17 of the
1988 Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.
“Credit Event Upon Merger” has the meaning specified in Section 5(b).
“Credit Support Document” means any agreement or instrument that is specified as such in this Agreement.
“Credit Support Provider” has the meaning specified in the Schedule.
“Cross-Default” means the event specified in Section 5(a)(vi).
“Default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant
payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum.
“Defaulting Party” has the meaning specified in Section 6(a).
“Designated Event” has the meaning specified in Section 5(b)(v).
“Determining Party” means the party determining a Close-out Amount.
“Early Termination Amount” has the meaning specified in Section 6(e).
“Early Termination Date” means the date determined in accordance with Section 6(a) or 6(b)(iv).
“electronic messages” does not include e-mails but does include documents expressed in markup languages, and
“electronic messaging system” will be construed accordingly.
“English law” means the law of England and Wales, and “English” will be construed accordingly.
“Event of Default” has the meaning specified in Section 5(a) and, if applicable, in the Schedule.
“Force Majeure Event” has the meaning specified in Section 5(b).
“General Business Day” means a day on which commercial banks are open for general business (including dealings
in foreign exchange and foreign currency deposits).
“Illegality” has the meaning specified in Section 5(b).
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“Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this
Agreement but for a present or former connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation,
a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having
had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely
from such recipient or related person having executed, delivered, performed its obligations or received a payment under,
or enforced, this Agreement or a Credit Support Document).
“law” includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant
governmental revenue authority), and “unlawful” will be construed accordingly.
“Local Business Day” means (a) in relation to any obligation under Section 2(a)(i), a General Business Day in the
place or places specified in the relevant Confirmation and a day on which a relevant settlement system is open or
operating as specified in the relevant Confirmation or, if a place or a settlement system is not so specified, as otherwise
agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this
Agreement, (b) for the purpose of determining when a Waiting Period expires, a General Business Day in the place
where the event or circumstance that constitutes or gives rise to the Illegality or Force Majeure Event, as the case may
be, occurs, (c) in relation to any other payment, a General Business Day in the place where the relevant account is
located and, if different, in the principal financial centre, if any, of the currency of such payment and, if that currency
does not have a single recognised principal financial centre, a day on which the settlement system necessary to
accomplish such payment is open, (d) in relation to any notice or other communication, including notice contemplated
under Section 5(a)(i), a General Business Day (or a day that would have been a General Business Day but for the
occurrence of an event or circumstance which would, if it occurred with respect to payment, delivery or compliance
related to a Transaction, constitute or give rise to an Illegality or a Force Majeure Event) in the place specified in the
address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where
the relevant new account is to be located and (e) in relation to Section 5(a)(v)(2), a General Business Day in the relevant
locations for performance with respect to such Specified Transaction.
“Local Delivery Day” means, for purposes of Sections 5(a)(i) and 5(d), a day on which settlement systems necessary
to accomplish the relevant delivery are generally open for business so that the delivery is capable of being accomplished
in accordance with customary market practice, in the place specified in the relevant Confirmation or, if not so specified,
in a location as determined in accordance with customary market practice for the relevant delivery.
“Master Agreement” has the meaning specified in the preamble.
“Merger Without Assumption” means the event specified in Section 5(a)(viii).
“Multiple Transaction Payment Netting” has the meaning specified in Section 2(c).
“Non-affected Party” means, so long as there is only one Affected Party, the other party.
“Non-default Rate” means the rate certified by the Non-defaulting Party to be a rate offered to the Non-defaulting
Party by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be
selected in good faith by the Non-defaulting Party for the purpose of obtaining a representative rate that will reasonably
reflect conditions prevailing at the time in that relevant market.
“Non-defaulting Party” has the meaning specified in Section 6(a).
“Office” means a branch or office of a party, which may be such party’s head or home office.
“Other Amounts” has the meaning specified in Section 6(f).
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“Payee” has the meaning specified in Section 6(f).
“Payer” has the meaning specified in Section 6(f).
“Potential Event of Default” means any event which, with the giving of notice or the lapse of time or both, would
constitute an Event of Default.
“Proceedings” has the meaning specified in Section 13(b).
“Process Agent” has the meaning specified in the Schedule.
“rate of exchange” includes, without limitation, any premiums and costs of exchange payable in connection with the
purchase of or conversion into the Contractual Currency.
“Relevant Jurisdiction” means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised,
managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes
of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from
or through which such payment is made.
“Schedule” has the meaning specified in the preamble.
“Scheduled Settlement Date” means a date on which a payment or delivery is to be made under Section 2(a)(i) with
respect to a Transaction.
“Specified Entity” has the meaning specified in the Schedule.
“Specified Indebtedness” means, subject to the Schedule, any obligation (whether present or future, contingent or
otherwise, as principal or surety or otherwise) in respect of borrowed money.
“Specified Transaction” means, subject to the Schedule, (a) any transaction (including an agreement with respect to
any such transaction) now existing or hereafter entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any
Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is not a
Transaction under this Agreement but (i) which is a rate swap transaction, swap option, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond
option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency
swap transaction, cross-currency rate swap transaction, currency option, credit protection transaction, credit swap,
credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse
repurchase transaction, buy/sell-back transaction, securities lending transaction, weather index transaction or forward
purchase or sale of a security, commodity or other financial instrument or interest (including any option with respect
to any of these transactions) or (ii) which is a type of transaction that is similar to any transaction referred to in clause
(i) above that is currently, or in the future becomes, recurrently entered into in the financial markets (including terms
and conditions incorporated by reference in such agreement) and which is a forward, swap, future, option or other
derivative on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities
or other debt instruments, economic indices or measures of economic risk or value, or other benchmarks against which
payments or deliveries are to be made, (b) any combination of these transactions and (c) any other transaction identified
as a Specified Transaction in this Agreement or the relevant confirmation.
“Stamp Tax” means any stamp, registration, documentation or similar tax.
“Stamp Tax Jurisdiction” has the meaning specified in Section 4(e).
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“Tax” means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest,
penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar tax.
“Tax Event” has the meaning specified in Section 5(b).
“Tax Event Upon Merger” has the meaning specified in Section 5(b).
“Terminated Transactions” means, with respect to any Early Termination Date, (a) if resulting from an Illegality or a
Force Majeure Event, all Affected Transactions specified in the notice given pursuant to Section 6(b)(iv), (b) if resulting
from any other Termination Event, all Affected Transactions and (c) if resulting from an Event of Default, all Transactions
in effect either immediately before the effectiveness of the notice designating that Early Termination Date or, if Automatic
Early Termination applies, immediately before that Early Termination Date.
“Termination Currency” means (a) if a Termination Currency is specified in the Schedule and that currency is freely
available, that currency, and (b) otherwise, euro if this Agreement is expressed to be governed by English law or United
States Dollars if this Agreement is expressed to be governed by the laws of the State of New York.
“Termination Currency Equivalent” means, in respect of any amount denominated in the Termination Currency, such
Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination
Currency (the “Other Currency”), the amount in the Termination Currency determined by the party making the relevant
determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination
Date, or, if the relevant Close-out Amount is determined as of a later date, that later date, with the Termination Currency
at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase
of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange
agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other
Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise
will be agreed by the parties.
“Termination Event” means an Illegality, a Force Majeure Event, a Tax Event, a Tax Event Upon Merger or, if specified
to be applicable, a Credit Event Upon Merger or an Additional Termination Event.
“Termination Rate” means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of
any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts.
“Threshold Amount” means the amount, if any, specified as such in the Schedule.
“Transaction” has the meaning specified in the preamble.
“Unpaid Amounts” owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in
respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but
for Section 2(a)(iii) or due but for Section 5(d)) to such party under Section 2(a)(i) or 2(d)(i)(4) on or prior to such
Early Termination Date and which remain unpaid as at such Early Termination Date, (b) in respect of each Terminated
Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii) or 5
(d)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not
been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or
would have been) required to be delivered and (c) if the Early Termination Date results from an Event of Default,
a Credit Event Upon Merger or an Additional Termination Event in respect of which all outstanding Transactions
are Affected Transactions, any Early Termination Amount due prior to such Early Termination Date and which
remains unpaid as of such Early Termination Date, in each case together with any amount of interest accrued or
other
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compensation in respect of that obligation or deferred obligation, as the case may be, pursuant to Section 9(h)(ii)
(1) or (2), as appropriate. The fair market value of any obligation referred to in clause (b) above will be determined
as of the originally scheduled date for delivery, in good faith and using commercially reasonable procedures, by
the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it will be the average
of the Termination Currency Equivalents of the fair market values so determined by both parties.
“Waiting Period” means:?
(a)
in respect of an event or circumstance under Section 5(b)(i), other than in the case of Section 5(b)(i)(2) where
the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period
will apply), a period of three Local Business Days (or days that would have been Local Business Days but for the
occurrence of that event or circumstance) following the occurrence of that event or circumstance; and
(b)
in respect of an event or circumstance under Section 5(b)(ii), other than in the case of Section 5(b)(ii)(2) where
the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period
will apply), a period of eight Local Business Days (or days that would have been Local Business Days but for the
occurrence of that event or circumstance) following the occurrence of that event or circumstance.
IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect
from the date specified on the first page of this document.
Bank of America, N.A.
LKQ Corporation
(Name of Party)
(Name of Party)
By:
/s/ ANA MORALES GILLARD
By:
/s/ JOHN S. QUINN
Name:
Title:
Ana Morales Gillard
Name:
John S. Quinn
Director
Title:
Executive VP & CFO
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ISDA® 2002
ISDA
International Swaps and Derivatives Association, Inc.
SCHEDULE
to the
2002 Master Agreement
dated as of June 27, 2013
between
BANK OF AMERICA, N.A.,
a national banking association organized and existing
under the laws of the United States of America ,
(“Party A”)
and
LKQ CORPORATION,
a corporation organized and existing under the laws of Delaware,
(“Party B”)
Part 1
Termination Provisions
(a)
“Specified Entity” means in relation to Party A for the purpose of Sections 5(a)(v), 5(a)(vi),
5(a)(vii) and 5(b)(v): none;
“Specified Entity” means in relation to Party B for the purpose of Sections 5(a)(v), 5(a)(vi),
5(a)(vii) and 5(b)(v): none.
“Specified Transaction” will have the meaning specified in Section 14 but shall also include
any transaction with respect to margin loans, cash loans and short sales of any financial
instrument, and as amended by inserting the words, “or any Affiliate of Party A” immediately
after “Agreement” in the second line thereof.
The “Cross-Default” provisions of Section 5(a)(vi):
will apply to Party A
and will apply to Party B.
(b)
(c)
In connection therewith, “Specified Indebtedness” will not have the meaning specified in
Section 14, and such definition shall be replaced by the following: “any obligation in respect
of the payment or repayment of moneys (whether present or future, contingent or otherwise,
as principal or surety or otherwise), including, but without limitation, any
obligation in respect of borrowed money except that such term shall not include obligations
in respect of deposits received in the ordinary course of a party’s banking business.”
“Threshold Amount” means with respect to Party A an amount equal to three percent (3%)
of the Shareholders’ Equity of Bank of America Corporation and with respect to Party B,
$75,000,000.
“Credit Agreement” means the Second Amended and Restated Credit Agreement dated as
of March 25, 2011, as amended and restated as of September 30, 2011, as further amended
and restated as of May 3, 2013, among LKQ Corporation and LKQ Delaware LLP, the
Subsidiary Borrowers from time to time party thereto, the Lenders party thereto from time
to time, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America,
N.A., as Syndication Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd. and RBS Citizens,
N.A, as Co-Documentation Agents, as amended, extended, supplemented, restated or
otherwise modified in writing from time to time.
“Shareholders’ Equity” means with respect to an entity, at any time, the sum (as shown in
the most recent annual audited financial statements of such entity) of (i) its capital stock
(including preferred stock) outstanding, taken at par value, (ii) its capital surplus and (iii)
its retained earnings, minus (iv) treasury stock, each to be determined in accordance with
generally accepted accounting principles.
(d)
(e)
The “Credit Event Upon Merger” provisions of Section 5(b)(v):
will apply to Party A
will apply to Party B
The “Automatic Early Termination” provision of Section 6(a):
will not apply to Party A
will not apply to Party B.
(f)
“Termination Currency” means United States Dollars.
(g)
Additional Termination Event will apply.
It shall be an Additional Termination Event hereunder, with respect to which Party B shall
be the sole Affected Party, if (1) an Event of Default (as defined in the Credit Agreement)
occurs under the Credit Agreement, or if (2) the Credit Agreement shall be paid or prepaid
in full, expire, terminate, or otherwise cease to be in full effect.
Part 2
Tax Representations
(a)
Payer Tax Representations. For the purpose of Section 3(e) of this Agreement, Party A and
Party B will make the following representation:-
2
It is not required by any applicable law, as modified by the practice of any relevant
governmental revenue authority, of any Relevant Jurisdiction to make any deduction or
withholding for or on account of any Tax from any payment (other than interest under
Section 9(h) of this Agreement) to be made by it to the other party under this Agreement.
In making this representation, it may rely on (i) the accuracy of any representations made
by the other party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the
agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and
effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4
(a)(iii) of this Agreement and (iii) the satisfaction of the agreement of the other party
contained in Section 4(d) of this Agreement, except that it will not be a breach of this
representation where reliance is placed on clause (ii) above and the other party does not
deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its
legal or commercial position.
(b)
Payee Tax Representations. For the purpose of Section 3(f) of this Agreement, Party A and
Party B will make the following representations specified below, if any:-
(i)
The following representations will apply to Party A:
Party A is a national banking association created or organized under the laws of the United
States of America and the federal taxpayer identification number is 94-1687665...
(ii)
The following representations will apply to Party B:
Party B is a corporation created or organized under the laws of the State of Delaware
and the federal taxpayer identification number is 36-4215970.
Part 3
Agreement to Deliver Documents
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the
following documents:
(a)
Tax forms, documents or certificates to be delivered are:
Party required
to
deliver
document
Party B
Document
Internal Revenue Service Form W-9
Date by which to be
delivered
Upon execution and
delivery of this
Agreement
3
(b)
Other documents to be delivered are:-
Party required
to deliver
document
Party A and
Party B
Form/Document/Certificate
Certified copies of all corporate,
partnership or membership authorizations,
as the case may be, and any other
documents with respect to the execution,
delivery and performance of this
Agreement and any Credit Support
Document
Party A and
Party B
Certificate of authority and specimen
signatures of individuals executing this
Agreement and any Credit Support
Document
Party A
Party A
Party B
Annual Report of PARTY A containing
audited, consolidated financial statements
certified by independent certified public
accountants and prepared in accordance
with generally accepted accounting
principles in the country in which such
party is organized
Quarterly Financial Statements of PARTY
A containing unaudited, consolidated
financial statements of such party’s fiscal
quarter prepared in accordance with
generally accepted accounting principles in
the country in which such party is
organized
Annual Report of Party B and of any
Credit Support Provider thereof containing
audited, consolidated financial statements
certified by independent certified public
accountants and prepared in accordance
with generally accepted accounting
principles in the country in which such
party and such Credit Support Provider is
organized
Date by which
to be delivered
Upon execution and
delivery of this
Agreement
Covered by
Section 3(d)
Representation
Yes
Yes
Yes
Yes
Yes
Upon execution and
delivery of this
Agreement and
thereafter upon request
of the other party
To be made available
on
www.bankofamerica.c
om/investor/ as soon
as available and in any
event within 90 days
after the end of each
fiscal year of Party A
To be made available
on
www.bankofamerica.c
om/investor/ as soon
as available and in any
event within 45 days
after the end of each
fiscal quarter of Party
A
To be made available
on www.lkqcorp.com
as soon as available
and in any event
within 90 days after
the end of each fiscal
year of Party B and of
the Credit Support
Provider
4
Form/Document/Certificate
Quarterly Financial Statements of Party B
and any Credit Support Provider thereof
containing unaudited, consolidated
financial statements of such party’s fiscal
quarter prepared in accordance with
generally accepted accounting principles in
the country in which such party and such
Credit Support Provider is organized
Date by which
to be delivered
To be made available
on www.lkqcorp.com
as soon as available
and in any event
within 45 days after
the end of each fiscal
quarter of Party B and
of the Credit Support
Provider
Covered by
Section 3(d)
Representation
Yes
Party required
to deliver
document
Party B
Part 4
Miscellaneous
(a)
Address for Notices. For the purpose of Section 12(a) of this Agreement:-
Address for notice or communications to Party A:
Bank of America, N.A.
200 N. College Street NC1-004-03-43
Charlotte, NC 28255-0001
Attention: Swap Operations
Telephone No.: (312) 234 2732
Facsimile No.: (866) 255 1444
With a copy to:-
Bank of America, N.A.
1133 Avenue of the Americas, NY1-533-42-01
New York, New York 10036
Attention: Client Integration and Documentation Group
Facsimile No.: (212) 548 8622
Address for notice or communications to Party B:
Address:
Telephone No.:
Facsimile No.:
Email Address:
with a copy to:
LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, IL 60611
Attention: Jack B. Brooks
312/621-2774
866/669-2811
jbbrooks@lkqcorp.com
5
Address:
LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, IL 60611
Attention: Victor Casini
Telephone No.:
Facsimile No.:
Email Address:
312/621-2754
312/280-3730
victorcasini@lkqccorp.com
(b)
Process Agent. For the purpose of Section 13(c):
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
(c)
Offices. The provisions of Section 10(a) will apply to this Agreement.
(d) Multibranch Party. For the purpose of Section 10(b) of this Agreement:-
Party A is a Multibranch Party and may act through its Charlotte, North Carolina, Chicago, Illinois,
San Francisco, California, New York, New York, Boston, Massachusetts or London, England Office,
its Canada Branch, located in Toronto, Ontario or such other Office as may be agreed to by the parties
in connection with a Transaction.
Party B is not a Multibranch Party.
(e)
Calculation Agent. The Calculation Agent is Party A.
(f)
Credit Support Document. Details of any Credit Support Document:-
Each of the following, as amended, extended, supplemented or otherwise modified in writing
from time to time, is a “Credit Support Document”:
In relation to Party B, the Credit Agreement, and the Security Documents, or the Collateral
Documents, as the case may be, as defined in the Credit Agreement.
Party B agrees that the security interests in collateral granted to Party A under the foregoing
Credit Support Documents shall secure the obligations of Party B to Party A under this
Agreement.
(g)
Credit Support Provider.
Credit Support Provider means in relation to party A: Not applicable.
Credit Support Provider means in relation to Party B: Subsidiary Borrowers and Subsidiary
Guarantors, each as defined in the Credit Agreement, excluding, however, any Subsidiary,
as defined in the Credit Agreement, that would become an Affected Foreign Subsidiary, as
defined in the Credit Agreement, if it guaranteed or became liable for, or
6
granted any security interests to secure, the obligations under this Agreement or any
Transaction.
(h)
(i)
Governing Law. This Agreement and any and all controversies arising out of or in relation
to this Agreement shall be governed by and construed in accordance with the laws of the
State of New York (without reference to its conflict of laws doctrine).
Netting of Payments. Section 2(c)(ii) of this Agreement shall apply; provided that either
party may cause payments due on the same day in the same currency (between the same
Offices) but under different Transactions to be discharged and replaced with a single, netted
payment obligation by providing the other party with a written statement detailing the
calculation of such net amount payable not later than two Business Days prior to the relevant
due date.
(j)
“Affiliate” will have the meaning specified in Section 14 of this Agreement.
(k)
Absence of Litigation. For the purpose of Section 3(c):-
“Specified Entity” means in relation to Party A, none;
“Specified Entity” means in relation to Party B, none.
(l)
No Agency. The provisions of Section 3(g) will apply to this Agreement.
(m)
Additional Representation will apply. For the purpose of Section 3 of this Agreement, each
of the following will constitute an Additional Representation:-
(i)
Relationship Between Parties. Each party will be deemed to represent to the other
party on the date on which it enters into a Transaction that (absent a written agreement
between the parties that expressly imposes affirmative obligations to the contrary
for that Transaction):-
(1)
Non-Reliance. It is acting for its own account, and, it has made its own
independent decisions to enter into that Transaction and as to whether that
Transaction is appropriate or proper for it based upon its own judgment and
upon advice from such advisors as it has deemed necessary. It is not relying
on any communication (written or oral) of the other party as investment
advice or as a recommendation to enter into that Transaction, it being
understood that information and explanations related to the terms and
conditions of a Transaction shall not be considered investment advice or a
recommendation to enter into that Transaction. No communication (written
or oral) received from the other party will be deemed to be an assurance or
guarantee as to the expected results of that Transaction.
(2)
Assessment and Understanding. It is capable of assessing the merits of and
understanding (on its own behalf or through independent professional
advice), and understands and accepts, the terms, conditions and risks of that
Transaction. It is also capable of assuming, and assumes, the risks of that
Transaction.
7
(3)
Status of Parties. The other party is not acting as a fiduciary for or an advisor
to it in respect of that Transaction.
(ii)
Each party makes the representations below (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into):
(1)
(2)
Eligible Contract Participant. Each party will be deemed to represent to the
other party on each date on which a Transaction is entered into that it is an “eligible
contract participant” and that each guarantor of its Swap Obligations (as defined
below), if any, is an “eligible contract participant,” as such term is defined in the
U.S. Commodity Exchange Act, as amended. For purposes of this provision, “Swap
Obligation” means an obligation incurred with respect to a transaction that is a
“swap” as defined in the Section 1a(47) of the Commodity Exchange Act and CFTC
Regulation 1.3(xxx).
Line of Business. It has entered into this Agreement (including each
Transaction evidenced hereby) in conjunction with its line of business
(including financial intermediation services) or the financing of its business.
It represents and warrants that all transactions effected under this Agreement
(a) will be appropriate in the conduct and management of its business, (b)
will be entered into for non-speculative purposes, and (c) as to Party B, Party
B represents that all Transactions effected under this Agreement constitute
transactions entered into for purposes of hedging or managing risks related
to its assets or liabilities as currently owned or incurred, or likely to be owned
or incurred in the conduct of its business.
(n)
Recording of Conversations. Each party to this Agreement acknowledges and agrees to
the recording of conversations between trading and marketing personnel of the parties to
this Agreement whether by one or other or both of the parties or their agents.
Part 5
Other Provisions
(a)
Financial Statements. Section 3(d) is hereby amended by adding in the third line thereof
after the word “respect” and before the period:
“or, in the case of financial statements, a fair presentation of the financial condition of the
relevant party.”
(b)
2002 Master Agreement Protocol. Annexes 1 to 18 and Section 6 of the ISDA 2002 Master
Agreement Protocol as published by the International Swaps and Derivatives Association,
Inc. on July 15, 2003 are incorporated into and apply to this Agreement. References in those
definitions and provisions to any ISDA Master Agreement will be deemed to be references
to this Master Agreement.
8
(c) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
ANY CREDIT SUPPORT DOCUMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
(d) Method of Notice. Section 12(a)(ii) of the Master Agreement is deleted in its entirety.
(e)
Safe Harbors. Each party to this Agreement acknowledges that:
(i)
(ii)
(iii)
This Agreement, including any Credit Support Document, is a “master netting
agreement” as defined in the U.S. Bankruptcy Code (the “Code”), and a “netting
contract” as defined in the netting provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (“FDICIA”), and this Agreement, including
any Credit Support Document, and each Transaction hereunder is of a type set forth
in Section 561(a)(1)-(5) of the Code;
Party A is a “master netting agreement participant,” a “financial institution,” a
“financial participant,”‘ a “forward contract merchant” and a “swap participant” as
defined in the Code, and a “financial institution” as defined in the netting provisions
of FDICIA;
The remedies provided herein, and in any Credit Support Document, are the remedies
referred to in Section 561(a), Sections 362(b)(6), (7), (17) and (27), and Section 362
(o) of the Code, and in Section 11(e)(8)(A) and (C) of the Federal Deposit Insurance
Act;
(iv) All transfers of cash, securities or other property under or in connection with this
Agreement, any Credit Support Document or any Transaction hereunder are “margin
payments,” “settlement payments” and “transfers” under Sections 546(c), (f), (g) or
(j), and under Sec[ion 548(d)(2) of the Code; and
(v)
Each obligation under this Agreement, any Credit Support Document or any
Transaction hereunder is an obligation to make a “margin payment,” “settlement
payment” and “payment” within the meaning of Sections 362, 560 and 561 of the
Code.
(f)
Hedge Agreement. Party B represents to Party A (which representation will be deemed to
be repeated by Party B on each date on which a Transaction is entered into) that this
Agreement is a Hedge Agreement as defined in the Credit Agreement.
(g) Withholding Tax Imposed on Payments to Non-U.S. Counterparties under the United
States Foreign Account Tax Compliance Act. (a) For purposes of any Payer Tax
Representation, the words “any Tax from any payment” shall not include any tax imposed
under Sections 1471 and 1472 of the Internal Revenue Code of 1986, as amended (or the
United States Treasury regulations or other guidance issued or any agreements entered into
thereunder) (“FATCA Withholding Tax”); (b) for the avoidance of doubt the parties agree
that for purposes of Section 2(d) of this Agreement the
9
(h)
(i)
(j)
(k)
deduction or withholding of FATCA Withholding Tax is required by applicable law; and (c)
the definition of “Indemnifiable Tax” shall not include any FATCA Withholding Tax.
Confirmations. For each Transaction that Party A and Party B agree to enter into under this
Agreement, Party A shall use reasonable efforts to promptly send to Party B a Confirmation
setting forth the terms of such Transaction by facsimile or other electronic means. Unless
Party B objects to the terms of a Transaction contained in any Confirmation within three
(3) Local Business Days of receipt thereof, the terms of such Confirmation shall be deemed
correct and accepted absent manifest error, unless a corrected Confirmation is sent by
Party A, within such three-day period, in which case Party B shall have two (2) Local
Business Days after receipt thereof to object to the terms contained in such corrected
Confirmation.
Only ECPs Can Be Guarantors. Notwithstanding anything to the contrary in this Agreement
or in any credit agreement or guaranty, no person providing a guaranty of any obligation of
Party B under this Agreement (each such person, a “Guarantor”) shall be deemed to be a
guarantor of, or to have granted a security interest to secure any guaranty by Guarantor of,
any Swap Obligation (as defined below) if such Guarantor is not an “Eligible Contract
Participant” as defined in the Commodity Exchange Act and the applicable rules and
regulations issued by the Commodity Futures Trading Commission and/or the Securities
and Exchange Commission (collectively, and as now or hereafter in effect, “the ECP Rules”)
at the time Party B entered into any applicable Transaction (each such Swap Obligation, an
“Excluded Swap Obligation”), but solely to the extent that the providing of such guaranty
by such Guarantor, or grant of a security interest to secure any guaranty by Guarantor, of
any Swap Obligation by such Guarantor would violate the ECP Rules or other applicable
law or regulation. Except as expressly set forth in the preceding sentence, nothing in this
Agreement shall be deemed to restrict, reduce or waive any obligation of any such Guarantor
under any guaranty or other Credit Support Document, and such guaranty or other Credit
Support Document shall continue to guarantee, or grant a security interest to secure, as
applicable, in accordance with its terms, each Swap Obligation that is not an Excluded Swap
Obligation.
The term “Swap Obligation” means any obligation of any person to pay or perform under
any Transaction that constitutes a “swap” as defined in the Commodity Exchange Act.
USA PATRIOT Act Notice. Party A hereby notifies Party B that pursuant to the requirements
of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the
“Act”), it is required to obtain, verify and record information that identifies Party B, which
information includes the name and address of Party B and other information that will allow
Party A to identify Party B in accordance with the Act.
Restatement and Amendment of Prior Agreement. This Master Agreement restates and
amends in its entirety the ISDA Master Agreement dated as of March 22, 2011 between the
parties hereto (the "Prior Agreement"). Each confirmation to the Prior Agreement shall be
deemed a Confirmation subject to this Agreement, and each transaction subject to such a
confirmation shall be governed hereby.
10
Part 6
Additional Terms for Foreign Exchange and Foreign Exchange Option Transactions
(a)
(b)
(c)
(d)
Incorporation of Definitions. The 1998 FX and Currency Option Definitions (the “FX
Definitions”), published by the International Swaps and Derivatives Association, Inc., the
Emerging Markets Traders Association and The Foreign Exchange Committee, are hereby
incorporated by reference with respect to FX Transactions (as defined in the FX Definitions)
and Currency Option Transactions (as defined in the FX Definitions). Terms defined in the
FX Definitions shall have the same meanings in this Part 6.
Scope. Unless otherwise agreed in writing by the parties, each FX Transaction and Currency
Option Transaction entered into between the parties before, on or after the date of this
Agreement shall be a Transaction under this Agreement and shall be part of, subject to and
governed by this Agreement. FX Transactions and Currency Option Transactions shall be
part of, subject to and governed by this Agreement even if the Confirmation in respect thereof
does not state that such FX Transaction or Currency Option Transaction is subject to or
governed by this Agreement or does not otherwise reference this Agreement.
When an FX Transaction or a Currency Option is confirmed by means of exchange of
electronic messages on an electronic messaging system or other document or other
confirming evidence exchanged between the parties confirming such Transaction, such
messages, document or evidence will constitute a Confirmation for the purposes of this
Agreement even where not so specified therein.
Premium Netting. If, on any date, and unless otherwise mutually agreed by the parties,
Premiums would otherwise be payable hereunder in the same Currency between the same
respective offices of the parties, then, on such date, each party’s obligation to make payment
of such Premiums will be automatically satisfied and discharged and, if the aggregate
Premiums that would otherwise have been payable by such office of one party exceeds the
aggregate Premiums that would otherwise have been payable by such office of the other
party, replaced by an obligation upon the party by whom the larger aggregate Premiums
would have been payable to pay the other party the excess of the larger aggregate Premiums
over the smaller aggregate Premiums, and if the aggregate Premiums are equal, no payment
shall be made.
Payment Netting of FX Transactions and Currency Option Transactions. Multiple
Transaction Payment Netting shall not apply to FX Transactions or Currency Option
Transactions. Unless otherwise mutually agreed by the parties, if on any date more than
one delivery of a particular Currency is to be made between a pair of offices with respect
to settlement of FX Transactions or Currency Option Transactions (but excluding payments
with respect to option premiums and cash settled options), then each party shall aggregate
the amounts of such Currency deliverable by it and only the difference between these
aggregate amounts shall be delivered by the party owing the larger aggregate amount to the
other party, and, if the aggregate amounts are equal, no delivery of the Currency shall be
made.
11
(e)
(f)
(g)
(h)
(i)
Potential Event of Default. Subject to Section 2(a)(iii) of the Agreement, if an Event of
Default or Potential Event of Default has occurred and is continuing, and an Early
Termination Date has not been designated by the Non-defaulting Party, the Non-defaulting
Party may, by written notice, specify that any or all Currency Options being settled while
such Event of Default or Potential Event of Default is continuing shall be settled in
accordance with Article 3, Section 3.7 of the FX Definitions and upon such notice becoming
effective, the Parties shall be deemed to have elected to have the specified Currency Options
settle at the In-the-Money Amount unless and until the Event of Default or Potential Event
of Default is no longer continuing.
Payment Instructions. All payments to be made hereunder in respect of FX and Currency
Option Transactions shall be made in accordance with standing payment instructions
provided by the parties from tune to time in writing (or as otherwise specified in a
Confirmation).
Notice of Exercise. Article 3, Section 3.5(g) of the FX Definitions is amended by the deletion
of the word “facsimile,” in the fourth line thereof.
Automatic Exercise. Article 3, Section 3.6(c)(i), line six of the FX Definitions which
currently reads “one percent of the Strike Price” shall be amended to read “0.5% of the
Strike Price,”
Terms Relating to Premium. Article 3, Section 3.4. of the FX Definitions is hereby amended
by the addition of the following as a new paragraph (c) of the FX Definitions.
“(c) Premium: Failure to Pay on Premium Payment Date. If any Premium is not
received on the Premium Payment Date, the Seller may elect: (i) to accept a late payment
of such Premium; (ii) to give written notice of such non-payment and, if such payment shall
not be received within two (2) Local Business Days of such notice, treat the related Currency
Option as void; or (iii) to give written notice of such non-payment and, if such payment
shall not be received within two (2) Local Business Days of such notice, treat such non-
payment as an Event of Default under Section 5(a)(i). If the Seller elects to act under either
clause (i) or (ii) of the preceding sentence, the Buyer shall pay all out-of-pocket costs and
actual damages incurred in connection with such unpaid or late Premium or void Currency
Option, including, without limitation, interest on such Premium in the same currency as
such Premium at the then prevailing market rate and any other costs or expenses incurred
by the Seller in covering its obligations (including without limitation, a delta hedge) with
respect to such currency Option.”
12
IN WITNESS WHEREOF, the parties have executed this Schedule by their duly authorized
officers as of the date hereof:
BANK OF AMERICA, N.A.
LKQ CORPORATION
By:
Name:
Title:
/s/ ANA MORALES GILLARD
Ana Morales Gillard
Director
By:
Name:
Title:
Date:
/s/ JOHN S. QUINN
John S. Quinn
Executive VP & CFO
October 7, 2013
13
Exhibit 10.24
ISDA
2002 MASTER AGREEMENT
International Swaps and Derivatives Association, Inc.
dated as of
September 18, 2013
CITIZENS BANK OF PENNSYLVANIA
and
LKQ CORPORATION
have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed
by this 2002 Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming
evidence (each a “Confirmation”) exchanged between the parties or otherwise effective for the purpose of confirming
or evidencing those Transactions. This 2002 Master Agreement and the Schedule are together referred to as this “Master
Agreement”.
Accordingly, the parties agree as follows:?
1.
Interpretation
Definitions. The terms defined in Section 14 and elsewhere in this Master Agreement will have the meanings
(a)
therein specified for the purpose of this Master Agreement.
Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions
(b)
of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement, such Confirmation will prevail for the purpose of the relevant Transaction.
Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all
(c)
Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the
parties would not otherwise enter into any Transactions.
2.
(a)
Obligations
General Conditions.
(i)
subject to the other provisions of this Agreement.
Each party will make each payment or delivery specified in each Confirmation to be made by it,
(ii)
Payments under this Agreement will be made on the due date for value on that date in the place of
the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required currency. Where settlement is
by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the
manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or
elsewhere in this Agreement.
Copyright © 2002 by International Swaps and Derivatives Association, Inc.
(iii)
Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no
Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing,
(2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred
or been effectively designated and (3) each other condition specified in this Agreement to be a condition
precedent for the purpose of this Section 2(a)(iii).
Change of Account. Either party may change its account for receiving a payment or delivery by giving notice
(b)
to the other party at least five Local Business Days prior to the Scheduled Settlement Date for the payment or delivery
to which such change applies unless such other party gives timely notice of a reasonable objection to such change.
(c)
Netting of Payments. If on any date amounts would otherwise be payable:?
(i)
in the same currency; and
(ii)
in respect of the same Transaction,
by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be
automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one
party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation
upon the party by which the larger aggregate amount would have been payable to pay to the other party the excess of
the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount and payment obligation will be determined
in respect of all amounts payable on the same date in the same currency in respect of those Transactions, regardless of
whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or
any Confirmation by specifying that “Multiple Transaction Payment Netting” applies to the Transactions identified as
being subject to the election (in which case clause (ii) above will not apply to such Transactions). If Multiple Transaction
Payment Netting is applicable to Transactions, it will apply to those Transactions with effect from the starting date
specified in the Schedule or such Confirmation, or, if a starting date is not specified in the Schedule or such Confirmation,
the starting date otherwise agreed by the parties in writing. This election may be made separately for different groups
of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments
or deliveries.
(d)
Deduction or Withholding for Tax.
Gross-Up. All payments under this Agreement will be made without any deduction or withholding
(i)
for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct
or withhold, then that party (“X”) will:?
(1)
promptly notify the other party (“Y”) of such requirement;
(2)
pay to the relevant authorities the full amount required to be deducted or withheld (including
the full amount required to be deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is
required or receiving notice that such amount has been assessed against Y;
(3)
reasonably acceptable to Y, evidencing such payment to such authorities; and
promptly forward to Y an official receipt (or a certified copy), or other documentation
2
ISDA® 2002
(4)
if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is
otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the
net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against
X or Y) will equal the full amount Y would have received had no such deduction or withholding been
required. However, X will not be required to pay any additional amount to Y to the extent that it
would not be required to be paid but for:?
(A)
(a)(i), 4(a)(iii) or 4(d); or
the failure by Y to comply with or perform any agreement contained in Section 4
(B)
the failure of a representation made by Y pursuant to Section 3(f) to be accurate
and true unless such failure would not have occurred but for (I) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, after a Transaction is entered into
(regardless of whether such action is taken or brought with respect to a party to this
Agreement) or (II) a Change in Tax Law.
(ii)
Liability. If:?
(1)
X is required by any applicable law, as modified by the practice of any relevant
governmental revenue authority, to make any deduction or withholding in respect of which X would
not be required to pay an additional amount to Y under Section 2(d)(i)(4);
(2)
(3)
X does not so deduct or withhold; and
a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly
pay to X the amount of such liability (including any related liability for interest, but including any related
liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)
(i), 4(a)(iii) or 4(d)).
3.
Representations
Each party makes the representations contained in Sections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) and, if specified in the
Schedule as applying, 3(g) to the other party (which representations will be deemed to be repeated by each party on
each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until
the termination of this Agreement). If any “Additional Representation” is specified in the Schedule or any Confirmation
as applying, the party or parties specified for such Additional Representation will make and, if applicable, be deemed
to repeat such Additional Representation at the time or times specified for such Additional Representation.
(a)
Basic Representations.
Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation
(i)
or incorporation and, if relevant under such laws, in good standing;
Powers. It has the power to execute this Agreement and any other documentation relating to this
(ii)
Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement
and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary
action to authorise such execution, delivery and performance;
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No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with
(iii)
any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or
other agency of government applicable to it or any of its assets or any contractual restriction binding on or
affecting it or any of its assets;
Consents. All governmental and other consents that are required to have been obtained by it with
(iv)
respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are
in full force and effect and all conditions of any such consents have been complied with; and
Obligations Binding. Its obligations under this Agreement and any Credit Support Document to
(v)
which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws
affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination
(b)
Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a
party.
Absence of Litigation. There is not pending or, to its knowledge, threatened against it, any of its Credit Support
(c)
Providers or any of its applicable Specified Entities any action, suit or proceeding at law or in equity or before any
court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform
its obligations under this Agreement or such Credit Support Document.
Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of
(d)
it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose
(e)
of this Section 3(e) is accurate and true.
Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose
(f)
of this Section 3(f) is accurate and true.
No Agency. It is entering into this Agreement, including each Transaction, as principal and not as agent of any
(g)
person or entity.
4.
Agreements
Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or
under any Credit Support Document to which it is a party:?
(a)
Furnish Specified Information. It will deliver to the other party or, in certain cases under clause (iii) below,
to such government or taxing authority as the other party reasonably directs:?
(i)
(ii)
any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;
any other documents specified in the Schedule or any Confirmation; and
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(iii)
upon reasonable demand by such other party, any form or document that may be required or reasonably
requested in writing in order to allow such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any deduction or withholding for or on
account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution
or submission of such form or document would not materially prejudice the legal or commercial position of
the party in receipt of such demand), with any such form or document to be accurate and completed in a manner
reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably
practicable.
Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of
(b)
any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary
in the future.
Comply With Laws. It will comply in all material respects with all applicable laws and orders to which it may
(c)
be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement
or any Credit Support Document to which it is a party.
Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate
(d)
and true promptly upon learning of such failure.
Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect
(e)
of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and
controlled or considered to have its seat, or where an Office through which it is acting for the purpose of this Agreement
is located (“Stamp Tax Jurisdiction”), and will indemnify the other party against any Stamp Tax levied or imposed upon
the other party or in respect of the other party’s execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.
5.
Events of Default and Termination Events
Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support
(a)
Provider of such party or any Specified Entity of such party of any of the following events constitutes (subject to
Sections 5(c) and 6(e)(iv)) an event of default (an “Event of Default”) with respect to such party:?
Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement
(i)
or delivery under Section 2(a)(i) or 9(h)(i)(2) or (4) required to be made by it if such failure is not remedied
on or before the first Local Business Day in the case of any such payment or the first Local Delivery Day in
the case of any such delivery after, in each case, notice of such failure is given to the party;
(ii)
Breach of Agreement; Repudiation of Agreement.
(1)
Failure by the party to comply with or perform any agreement or obligation (other than an
obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 9(h)(i)(2)
or (4) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i),
4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement
if such failure is not remedied within 30 days after notice of such failure is given to the party; or
(2)
validity of, this Master Agreement, any Confirmation executed and delivered by that party or any
the party disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the
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Transaction evidenced by such a Confirmation (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(iii)
Credit Support Default.
(1)
Failure by the party or any Credit Support Provider of such party to comply with or perform
any agreement or obligation to be complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any applicable grace period has elapsed;
(2)
the expiration or termination of such Credit Support Document or the failing or ceasing of
such Credit Support Document, or any security interest granted by such party or such Credit Support
Provider to the other party pursuant to any such Credit Support Document, to be in full force and
effect for the purpose of this Agreement (in each case other than in accordance with its terms) prior
to the satisfaction of all obligations of such party under each Transaction to which such Credit Support
Document relates without the written consent of the other party; or
(3)
the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in
whole or in part, or challenges the validity of, such Credit Support Document (or such action is taken
by any person or entity appointed or empowered to operate it or act on its behalf);
Misrepresentation. A representation (other than a representation under Section 3(e) or 3(f)) made or
(iv)
repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party
in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material
respect when made or repeated or deemed to have been made or repeated;
Default Under Specified Transaction. The party, any Credit Support Provider of such party or any
(v)
applicable Specified Entity of such party:?
(1)
defaults (other than by failing to make a delivery) under a Specified Transaction or any
credit support arrangement relating to a Specified Transaction and, after giving effect to any applicable
notice requirement or grace period, such default results in a liquidation of, an acceleration of
obligations under, or an early termination of, that Specified Transaction;
(2)
defaults, after giving effect to any applicable notice requirement or grace period, in making
any payment due on the last payment or exchange date of, or any payment on early termination of,
a Specified Transaction (or, if there is no applicable notice requirement or grace period, such default
continues for at least one Local Business Day);
(3)
defaults in making any delivery due under (including any delivery due on the last delivery
or exchange date of) a Specified Transaction or any credit support arrangement relating to a Specified
Transaction and, after giving effect to any applicable notice requirement or grace period, such default
results in a liquidation of, an acceleration of obligations under, or an early termination of, all
transactions outstanding under the documentation applicable to that Specified Transaction; or
disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of,
(4)
a Specified Transaction or any credit support arrangement relating to a Specified Transaction that is,
in either case, confirmed or evidenced by a document or other confirming evidence executed and
delivered by that party, Credit Support Provider or Specified Entity (or such action is taken by any
person or entity appointed or empowered to operate it or act on its behalf);
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Cross-Default. If “Cross-Default” is specified in the Schedule as applying to the party, the occurrence
(vi)
or existence of:?
(1)
a default, event of default or other similar condition or event (however described) in respect
of such party, any Credit Support Provider of such party or any applicable Specified Entity of such
party under one or more agreements or instruments relating to Specified Indebtedness of any of them
(individually or collectively) where the aggregate principal amount of such agreements or instruments,
either alone or together with the amount, if any, referred to in clause (2) below, is not less than the
applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified
Indebtedness becoming, or becoming capable at such time of being declared, due and payable under
such agreements or instruments before it would otherwise have been due and payable; or
(2)
a default by such party, such Credit Support Provider or such Specified Entity (individually
or collectively) in making one or more payments under such agreements or instruments on the due
date for payment (after giving effect to any applicable notice requirement or grace period) in an
aggregate amount, either alone or together with the amount, if any, referred to in clause (1) above,
of not less than the applicable Threshold Amount;
Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity
(vii)
of such party:?
(1)
is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes
insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its
debts as they become due; (3) makes a general assignment, arrangement or composition with or for
the benefit of its creditors; (4)(A) institutes or has instituted against it, by a regulator, supervisor or
any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the
jurisdiction of its incorporation or organisation or the jurisdiction of its head or home office, a
proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy
or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its
winding-up or liquidation by it or such regulator, supervisor or similar official, or (B) has instituted
against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented
for its winding-up or liquidation, and such proceeding or petition is instituted or presented by a person
or entity not described in clause (A) above and either (I) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation
or (II) is not dismissed, discharged, stayed or restrained in each case within 15 days of the institution
or presentation thereof; (5) has a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes
subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee,
custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party
take possession of all or substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or against all or substantially all its
assets and such secured party maintains possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 15 days thereafter; (8) causes or is subject to any event with
respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of
the events specified in clauses (1) to (7) above (inclusive); or (9) takes any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or
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(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates
or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, or reorganises,
reincorporates or reconstitutes into or as, another entity and, at the time of such consolidation, amalgamation,
merger, transfer, reorganisation, reincorporation or reconstitution:?
(1)
the resulting, surviving or transferee entity fails to assume all the obligations of such party
or such Credit Support Provider under this Agreement or any Credit Support Document to which it
or its predecessor was a party; or
(2)
the benefits of any Credit Support Document fail to extend (without the consent of the other
party) to the performance by such resulting, surviving or transferee entity of its obligations under
this Agreement.
Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support
(b)
Provider of such party or any Specified Entity of such party of any event specified below constitutes (subject to Section
5(c)) an Illegality if the event is specified in clause (i) below, a Force Majeure Event if the event is specified in clause
(ii) below, a Tax Event if the event is specified in clause (iii) below, a Tax Event Upon Merger if the event is specified
in clause (iv) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant
to clause (v) below or an Additional Termination Event if the event is specified pursuant to clause (vi) below:?
Illegality. After giving effect to any applicable provision, disruption fallback or remedy specified in,
(i)
or pursuant to, the relevant Confirmation or elsewhere in this Agreement, due to an event or circumstance
(other than any action taken by a party or, if applicable, any Credit Support Provider of such party) occurring
after a Transaction is entered into, it becomes unlawful under any applicable law (including without limitation
the laws of any country in which payment, delivery or compliance is required by either party or any Credit
Support Provider, as the case may be), on any day, or it would be unlawful if the relevant payment, delivery
or compliance were required on that day (in each case, other than as a result of a breach by the party of Section
4(b)):?
(1)
for the Office through which such party (which will be the Affected Party) makes and receives
payments or deliveries with respect to such Transaction to perform any absolute or contingent
obligation to make a payment or delivery in respect of such Transaction, to receive a payment or
delivery in respect of such Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
(2)
for such party or any Credit Support Provider of such party (which will be the Affected
Party) to perform any absolute or contingent obligation to make a payment or delivery which such
party or Credit Support Provider has under any Credit Support Document relating to such Transaction,
to receive a payment or delivery under such Credit Support Document or to comply with any other
material provision of such Credit Support Document;
Force Majeure Event. After giving effect to any applicable provision, disruption fallback or remedy
(ii)
specified in, or pursuant to, the relevant Confirmation or elsewhere in this Agreement, by reason of force
majeure or act of state occurring after a Transaction is entered into, on any day:?
(1)
the Office through which such party (which will be the Affected Party) makes and receives
payments or deliveries with respect to such Transaction is prevented from performing any absolute
or contingent obligation to make a payment or delivery in respect of such Transaction, from receiving
a payment or delivery in respect of such Transaction or from complying with any other material
provision of this Agreement relating to such Transaction (or would be so prevented if such payment,
delivery or compliance were required on that day), or it becomes impossible or
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impracticable for such Office so to perform, receive or comply (or it would be impossible or
impracticable for such Office so to perform, receive or comply if such payment, delivery or compliance
were required on that day); or
(2)
such party or any Credit Support Provider of such party (which will be the Affected Party)
is prevented from performing any absolute or contingent obligation to make a payment or delivery
which such party or Credit Support Provider has under any Credit Support Document relating to such
Transaction, from receiving a payment or delivery under such Credit Support Document or from
complying with any other material provision of such Credit Support Document (or would be so
prevented if such payment, delivery or compliance were required on that day), or it becomes
impossible or impracticable for such party or Credit Support Provider so to perform, receive or comply
(or it would be impossible or impracticable for such party or Credit Support Provider so to perform,
receive or comply if such payment, delivery or compliance were required on that day),
so long as the force majeure or act of state is beyond the control of such Office, such party or such Credit
Support Provider, as appropriate, and such Office, party or Credit Support Provider could not, after using all
reasonable efforts (which will not require such party or Credit Support Provider to incur a loss, other than
immaterial, incidental expenses), overcome such prevention, impossibility or impracticability;
Tax Event. Due to (1) any action taken by a taxing authority, or brought in a court of competent
(iii)
jurisdiction, after a Transaction is entered into (regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (2) a Change in Tax Law, the party (which will be the Affected Party)
will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Settlement Date (A) be
required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)
(i)(4) (except in respect of interest under Section 9(h)) or (B) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 9
(h)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than
by reason of Section 2(d)(i)(4)(A) or (B));
Tax Event Upon Merger. The party (the “Burdened Party”) on the next succeeding Scheduled
(iv)
Settlement Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax
under Section 2(d)(i)(4) (except in respect of interest under Section 9(h)) or (2) receive a payment from which
an amount has been deducted or withheld for or on account of any Tax in respect of which the other party is
not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case
as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or
substantially all its assets (or any substantial part of the assets comprising the business conducted by it as of
the date of this Master Agreement) to, or reorganising, reincorporating or reconstituting into or as, another
entity (which will be the Affected Party) where such action does not constitute a Merger Without Assumption;
Credit Event Upon Merger. If “Credit Event Upon Merger” is specified in the Schedule as applying
(v)
to the party, a Designated Event (as defined below) occurs with respect to such party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (in each case, “X”) and such Designated
Event does not constitute a Merger Without Assumption, and the creditworthiness of X or, if applicable, the
successor, surviving or transferee entity of X, after taking into account any applicable Credit Support Document,
is materially weaker immediately after the occurrence of such Designated Event than that of X immediately
prior to the occurrence of such Designated Event (and, in any such event, such party or its successor, surviving
or transferee entity, as appropriate, will be the Affected Party). A “Designated Event” with respect to X means
that:?
(1)
X consolidates or amalgamates with, or merges with or into, or transfers all or substantially
all its assets (or any substantial part of the assets comprising the business conducted by X as of the
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date of this Master Agreement) to, or reorganises, reincorporates or reconstitutes into or as, another
entity;
(2)
any person, related group of persons or entity acquires directly or indirectly the beneficial
ownership of (A) equity securities having the power to elect a majority of the board of directors (or
its equivalent) of X or (B) any other ownership interest enabling it to exercise control of X; or
(3)
X effects any substantial change in its capital structure by means of the issuance, incurrence
or guarantee of debt or the issuance of (A) preferred stock or other securities convertible into or
exchangeable for debt or preferred stock or (B) in the case of entities other than corporations, any
other form of ownership interest; or
Additional Termination Event. If any “Additional Termination Event” is specified in the Schedule
(vi)
or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or
Affected Parties will be as specified for such Additional Termination Event in the Schedule or such
Confirmation).
(c)
Hierarchy of Events.
An event or circumstance that constitutes or gives rise to an Illegality or a Force Majeure Event will
(i)
not, for so long as that is the case, also constitute or give rise to an Event of Default under Section 5(a)(i), 5
(a)(ii)(1) or 5(a)(iii)(1) insofar as such event or circumstance relates to the failure to make any payment or
delivery or a failure to comply with any other material provision of this Agreement or a Credit Support
Document, as the case may be.
(ii)
Except in circumstances contemplated by clause (i) above, if an event or circumstance which would
otherwise constitute or give rise to an Illegality or a Force Majeure Event also constitutes an Event of Default
or any other Termination Event, it will be treated as an Event of Default or such other Termination Event, as
the case may be, and will not constitute or give rise to an Illegality or a Force Majeure Event.
(iii)
If an event or circumstance which would otherwise constitute or give rise to a Force Majeure Event
also constitutes an Illegality, it will be treated as an Illegality, except as described in clause (ii) above, and not
a Force Majeure Event.
Deferral of Payments and Deliveries During Waiting Period. If an Illegality or a Force Majeure Event has
(d)
occurred and is continuing with respect to a Transaction, each payment or delivery which would otherwise be required
to be made under that Transaction will be deferred to, and will not be due until:?
(i)
the first Local Business Day or, in the case of a delivery, the first Local Delivery Day (or the first
day that would have been a Local Business Day or Local Delivery Day, as appropriate, but for the occurrence
of the event or circumstance constituting or giving rise to that Illegality or Force Majeure Event) following
the end of any applicable Waiting Period in respect of that Illegality or Force Majeure Event, as the case may
be; or
if earlier, the date on which the event or circumstance constituting or giving rise to that Illegality or
(ii)
Force Majeure Event ceases to exist or, if such date is not a Local Business Day or, in the case of a delivery,
a Local Delivery Day, the first following day that is a Local Business Day or Local Delivery Day, as appropriate.
Inability of Head or Home Office to Perform Obligations of Branch. If (i) an Illegality or a Force Majeure
(e)
Event occurs under Section 5(b)(i)(1) or 5(b)(ii)(1) and the relevant Office is not the Affected Party’s head or home
office, (ii) Section 10(a) applies, (iii) the other party seeks performance of the relevant obligation or
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compliance with the relevant provision by the Affected Party’s head or home office and (iv) the Affected Party’s head
or home office fails so to perform or comply due to the occurrence of an event or circumstance which would, if that
head or home office were the Office through which the Affected Party makes and receives payments and deliveries
with respect to the relevant Transaction, constitute or give rise to an Illegality or a Force Majeure Event, and such
failure would otherwise constitute an Event of Default under Section 5(a)(i)or 5(a)(iii)(1) with respect to such party,
then, for so long as the relevant event or circumstance continues to exist with respect to both the Office referred to in
Section 5(b)(i)(1) or 5(b)(ii)(1), as the case may be, and the Affected Party’s head or home office, such failure will not
constitute an Event of Default under Section 5(a)(i) or 5(a)(iii)(1).
6.
Early Termination; Close-Out Netting
Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party
(a)
(the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not
more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier
than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however,
“Automatic Early Termination” is specified in the Schedule as applying to a party, then an Early Termination Date in
respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time
immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the
occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous
thereto, (8).
(b)
Right to Terminate Following Termination Event.
Notice. If a Termination Event other than a Force Majeure Event occurs, an Affected Party will,
(i)
promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event
and each Affected Transaction, and will also give the other party such other information about that Termination
Event as the other party may reasonably require. If a Force Majeure Event occurs, each party will, promptly
upon becoming aware of it, use all reasonable efforts to notify the other party, specifying the nature of that
Force Majeure Event, and will also give the other party such other information about that Force Majeure Event
as the other party may reasonably require.
Transfer to Avoid Termination Event. If a Tax Event occurs and there is only one Affected Party, or
(ii)
if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as
a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts
(which will not require such party to incur a loss, other than immaterial, incidental expenses) to transfer within
20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect
of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to
exist.
If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within
such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is
given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written
consent of the other party, which consent will not be withheld if such other party’s policies in effect at such
time would permit it to enter into transactions with the transferee on the terms proposed.
Two Affected Parties. If a Tax Event occurs and there are two Affected Parties, each party will use
(iii)
all reasonable efforts to reach agreement within 30 days after notice of such occurrence is given under Section
6(b)(i) to avoid that Termination Event.
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(iv)
Right to Terminate.
(1)
If:?
(A)
a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case
may be, has not been effected with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(B)
Event Upon Merger occurs and the Burdened Party is not the Affected Party,
a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax
the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax
Event or an Additional Termination Event if there are two Affected Parties, or the Non-affected Party
in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, if the relevant Termination Event is then continuing, by not more than 20 days
notice to the other party, designate a day not earlier than the day such notice is effective as an Early
Termination Date in respect of all Affected Transactions.
(2)
and any applicable Waiting Period has expired:?
If at any time an Illegality or a Force Majeure Event has occurred and is then continuing
(A)
Subject to clause (B) below, either party may, by not more than 20 days notice to
the other party, designate (I) a day not earlier than the day on which such notice becomes
effective as an Early Termination Date in respect of all Affected Transactions or (II) by
specifying in that notice the Affected Transactions in respect of which it is designating the
relevant day as an Early Termination Date, a day not earlier than two Local Business Days
following the day on which such notice becomes effective as an Early Termination Date in
respect of less than all Affected Transactions. Upon receipt of a notice designating an Early
Termination Date in respect of less than all Affected Transactions, the other party may, by
notice to the designating party, if such notice is effective on or before the day so designated,
designate that same day as an Early Termination Date in respect of any or all other Affected
Transactions.
(B)
An Affected Party (if the Illegality or Force Majeure Event relates to performance
by such party or any Credit Support Provider of such party of an obligation to make any
payment or delivery under, or to compliance with any other material provision of, the relevant
Credit Support Document) will only have the right to designate an Early Termination Date
under Section 6(b)(iv)(2)(A) as a result of an Illegality under Section 5(b)(i)(2) or a Force
Majeure Event under Section 5(b)(ii)(2) following the prior designation by the other party
of an Early Termination Date, pursuant to Section 6(b)(iv)(2)(A), in respect of less than all
Affected Transactions.
(c)
Effect of Designation.
If notice designating an Early Termination Date is given under Section 6(a) or 6(b), the Early
(i)
Termination Date will occur on the date so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii)
Upon the occurrence or effective designation of an Early Termination Date, no further payments or
deliveries under Section 2(a)(i) or 9(h)(i) in respect of the Terminated Transactions will be required to be
made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect
of an Early Termination Date will be determined pursuant to Sections 6(e) and 9(h)(ii).
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(d)
Calculations; Payment Date.
Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination
(i)
Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide
to the other party a statement (1) showing, in reasonable detail, such calculations (including any quotations,
market data or information from internal sources used in making such calculations), (2) specifying (except
where there are two Affected Parties) any Early Termination Amount payable and (3) giving details of the
relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from
the source of a quotation or market data obtained in determining a Close-out Amount, the records of the party
obtaining such quotation or market data will be conclusive evidence of the existence and accuracy of such
quotation or market data.
Payment Date. An Early Termination Amount due in respect of any Early Termination Date will,
(ii)
together with any amount of interest payable pursuant to Section 9(h)(ii)(2), be payable (1) on the day on
which notice of the amount payable is effective in the case of an Early Termination Date which is designated
or occurs as a result of an Event of Default and (2) on the day which is two Local Business Days after the day
on which notice of the amount payable is effective (or, if there are two Affected Parties, after the day on which
the statement provided pursuant to clause (i) above by the second party to provide such a statement is effective)
in the case of an Early Termination Date which is designated as a result of a Termination Event.
Payments on Early Termination. If an Early Termination Date occurs, the amount, if any, payable in respect
(e)
of that Early Termination Date (the “Early Termination Amount”) will be determined pursuant to this Section 6(e) and
will be subject to Section 6(f).
Events of Default. If the Early Termination Date results from an Event of Default, the Early
(i)
Termination Amount will be an amount equal to (1) the sum of (A) the Termination Currency Equivalent of
the Close-out Amount or Close-out Amounts (whether positive or negative) determined by the Non-defaulting
Party for each Terminated Transaction or group of Terminated Transactions, as the case may be, and (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (2) the
Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If the Early
Termination Amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is
a negative number, the Non-defaulting Party will pay the absolute value of the Early Termination Amount to
the Defaulting Party.
(ii)
Termination Events. If the Early Termination Date results from a Termination Event:?
One Affected Party. Subject to clause (3) below, if there is one Affected Party, the Early
(1)
Termination Amount will be determined in accordance with Section 6(e)(i), except that references
to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected
Party and to the Non-affected Party, respectively.
Two Affected Parties. Subject to clause (3) below, if there are two Affected Parties, each
(2)
party will determine an amount equal to the Termination Currency Equivalent of the sum of the Close-
out Amount or Close-out Amounts (whether positive or negative) for each Terminated Transaction
or group of Terminated Transactions, as the case may be, and the Early Termination Amount will be
an amount equal to (A) the sum of (I) one-half of the difference between the higher amount so
determined (by party “X”) and the lower amount so determined (by party “Y”) and (II) the Termination
Currency Equivalent of the Unpaid Amounts owing to X less (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to Y. If the Early Termination Amount is a positive number, Y will
pay it to X; if it is a negative number, X will pay the absolute value of the Early Termination Amount
to Y.
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Mid-Market Events. If that Termination Event is an Illegality or a Force Majeure Event, then
(3)
the Early Termination Amount will be determined in accordance with clause (1) or (2) above, as
appropriate, except that, for the purpose of determining a Close-out Amount or Close-out Amounts,
the Determining Party will:?
(A)
if obtaining quotations from one or more third parties (or from any of the
Determining Party’s Affiliates), ask each third party or Affiliate (I) not to take account of
the current creditworthiness of the Determining Party or any existing Credit Support
Document and (II) to provide mid-market quotations; and
(B)
the Determining Party.
in any other case, use mid-market values without regard to the creditworthiness of
Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs
(iii)
because Automatic Early Termination applies in respect of a party, the Early Termination Amount
will be subject to such adjustments as are appropriate and permitted by applicable law to reflect any
payments or deliveries made by one party to the other under this Agreement (and retained by such
other party) during the period from the relevant Early Termination Date to the date for payment
determined under Section 6(d)(ii).
Adjustment for Illegality or Force Majeure Event. The failure by a party or any Credit
(iv)
Support Provider of such party to pay, when due, any Early Termination Amount will not constitute
an Event of Default under Section 5(a)(i) or 5(a)(iii)(1) if such failure is due to the occurrence of an
event or circumstance which would, if it occurred with respect to payment, delivery or compliance
related to a Transaction, constitute or give rise to an Illegality or a Force Majeure Event. Such amount
will (1) accrue interest and otherwise be treated as an Unpaid Amount owing to the other party if
subsequently an Early Termination Date results from an Event of Default, a Credit Event Upon Merger
or an Additional Termination Event in respect of which all outstanding Transactions are Affected
Transactions and (2) otherwise accrue interest in accordance with Section 9(h)(ii)(2).
Pre-Estimate. The parties agree that an amount recoverable under this Section 6(e) is a
(v)
reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks, and, except as otherwise provided in this Agreement, neither
party will be entitled to recover any additional damages as a consequence of the termination of the
Terminated Transactions.
Set-Off. Any Early Termination Amount payable to one party (the “Payee”) by the other party (the “Payer”),
(f)
in circumstances where there is a Defaulting Party or where there is one Affected Party in the case where either a Credit
Event Upon Merger has occurred or any other Termination Event in respect of which all outstanding Transactions are
Affected Transactions has occurred, will, at the option of the Non-defaulting Party or the Non-affected Party, as the
case may be (“X”) (and without prior notice to the Defaulting Party or the Affected Party, as the case may be), be
reduced by its set-off against any other amounts (“Other Amounts”) payable by the Payee to the Payer (whether or not
arising under this Agreement, matured or contingent and irrespective of the currency, place of payment or place of
booking of the obligation). To the extent that any Other Amounts are so set off, those Other Amounts will be discharged
promptly and in all respects. X will give notice to the other party of any set-off effected under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other Amounts (or the relevant portion of such amounts)
may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party
would be able, in good faith and using commercially reasonable procedures, to purchase the relevant amount of such
currency.
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If an obligation is unascertained, X may in good faith estimate that obligation and set off in respect of the estimate,
subject to the relevant party accounting to the other when the obligation is ascertained.
Nothing in this Section 6(f) will be effective to create a charge or other security interest. This Section 6(f) will be
without prejudice and in addition to any right of set-off, offset, combination of accounts, lien, right of retention or
withholding or similar right or requirement to which any party is at any time otherwise entitled or subject (whether by
operation of law, contract or otherwise).
7.
Transfer
Subject to Section 6(b)(ii) and to the extent permitted by applicable law, neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party, except that:?
(a)
a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or
merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other
right or remedy under this Agreement); and
(b)
a party may make such a transfer of all or any part of its interest in any Early Termination Amount payable to
it by a Defaulting Party, together with any amounts payable on or with respect to that interest and any other rights
associated with that interest pursuant to Sections 8, 9(h) and 11.
Any purported transfer that is not in compliance with this Section 7 will be void.
8.
Contractual Currency
Payment in the Contractual Currency. Each payment under this Agreement will be made in the relevant
(a)
currency specified in this Agreement for that payment (the “Contractual Currency”). To the extent permitted by
applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged
or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results
in the actual receipt by the party to which payment is owed, acting in good faith and using commercially reasonable
procedures in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual
Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency
so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required
to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the
Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual
Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party
receiving the payment will refund promptly the amount of such excess.
Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other
(b)
than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii)
for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a
judgment or order of another court for the payment of any amount described in clause (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or
order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency
received by such party as a consequence of sums paid in such other currency and will refund promptly to the other
party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other
currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the
Contractual Currency is converted into the currency of the judgment or order for the purpose of such judgment or order
and the rate of exchange at which such party is able, acting in good faith and using
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commercially reasonable procedures in converting the currency received into the Contractual Currency, to purchase
the Contractual Currency with the amount of the currency of the judgment or order actually received by such party.
Separate Indemnities. To the extent permitted by applicable law, the indemnities in this Section 8 constitute
(c)
separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and
independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment
is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable
in respect of this Agreement.
Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would
(d)
have suffered a loss had an actual exchange or purchase been made.
9.
Miscellaneous
Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with
(a)
respect to its subject matter. Each of the parties acknowledges that in entering into this Agreement it has not relied on
any oral or written representation, warranty or other assurance (except as provided for or referred to in this Agreement)
and waives all rights and remedies which might otherwise be available to it in respect thereof, except that nothing in
this Agreement will limit or exclude any liability of a party for fraud.
Amendments. An amendment, modification or waiver in respect of this Agreement will only be effective if
(b)
in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed
by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system.
Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under
(c)
this Agreement will survive the termination of any Transaction.
Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges
(d)
provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided
by law.
(e)
Counterparts and Confirmations.
(i)
This Agreement (and each amendment, modification and waiver in respect of it) may be executed
and delivered in counterparts (including by facsimile transmission and by electronic messaging system), each
of which will be deemed an original.
(ii)
The parties intend that they are legally bound by the terms of each Transaction from the moment they
agree to those terms (whether orally or otherwise). A Confirmation will be entered into as soon as practicable
and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an
exchange of telexes, by an exchange of electronic messages on an electronic messaging system or by an
exchange of e-mails, which in each case will be sufficient for all purposes to evidence a binding supplement
to this Agreement. The parties will specify therein or through another effective means that any such counterpart,
telex, electronic message or e-mail constitutes a Confirmation.
No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement
(f)
will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be
presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other
right, power or privilege.
Headings. The headings used in this Agreement are for convenience of reference only and are not to affect
(g)
the construction of or to be taken into consideration in interpreting this Agreement.
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(h)
Interest and Compensation.
(i)
Date in respect of the relevant Transaction:?
Prior to Early Termination. Prior to the occurrence or effective designation of an Early Termination
Interest on Defaulted Payments. If a party defaults in the performance of any payment
(1)
obligation, it will, to the extent permitted by applicable law and subject to Section 6(c), pay interest
(before as well as after judgment) on the overdue amount to the other party on demand in the same
currency as the overdue amount, for the period from (and including) the original due date for payment
to (but excluding) the date of actual payment (and excluding any period in respect of which interest
or compensation in respect of the overdue amount is due pursuant to clause (3)(B) or (C) below), at
the Default Rate.
Compensation for Defaulted Deliveries. If a party defaults in the performance of any
(2)
obligation required to be settled by delivery, it will on demand (A) compensate the other party to the
extent provided for in the relevant Confirmation or elsewhere in this Agreement and (B) unless
otherwise provided in the relevant Confirmation or elsewhere in this Agreement, to the extent
permitted by applicable law and subject to Section 6(c), pay to the other party interest (before as well
as after judgment) on an amount equal to the fair market value of that which was required to be
delivered in the same currency as that amount, for the period from (and including) the originally
scheduled date for delivery to (but excluding) the date of actual delivery (and excluding any period
in respect of which interest or compensation in respect of that amount is due pursuant to clause (4)
below), at the Default Rate. The fair market value of any obligation referred to above will be
determined as of the originally scheduled date for delivery, in good faith and using commercially
reasonable procedures, by the party that was entitled to take delivery.
(3)
Interest on Deferred Payments. If:?
(A)
a party does not pay any amount that, but for Section 2(a)(iii), would have been
payable, it will, to the extent permitted by applicable law and subject to Section 6(c) and
clauses (B) and (C) below, pay interest (before as well as after judgment) on that amount to
the other party on demand (after such amount becomes payable) in the same currency as
that amount, for the period from (and including) the date the amount would, but for Section
2(a)(iii), have been payable to (but excluding) the date the amount actually becomes payable,
at the Applicable Deferral Rate;
a payment is deferred pursuant to Section 5(d), the party which would otherwise
(B)
have been required to make that payment will, to the extent permitted by applicable law,
subject to Section 6(c) and for so long as no Event of Default or Potential Event of Default
with respect to that party has occurred and is continuing, pay interest (before as well as after
judgment) on the amount of the deferred payment to the other party on demand (after such
amount becomes payable) in the same currency as the deferred payment, for the period from
(and including) the date the amount would, but for Section 5(d), have been payable to (but
excluding) the earlier of the date the payment is no longer deferred pursuant to Section 5
(d) and the date during the deferral period upon which an Event of Default or Potential Event
of Default with respect to that party occurs, at the Applicable Deferral Rate; or
(C)
a party fails to make any payment due to the occurrence of an Illegality or a Force
Majeure Event (after giving effect to any deferral period contemplated by clause (B) above),
it will, to the extent permitted by applicable law, subject to Section 6(c) and for so long as
the event or circumstance giving rise to that Illegality or Force Majeure Event
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continues and no Event of Default or Potential Event of Default with respect to that party
has occurred and is continuing, pay interest (before as well as after judgment) on the overdue
amount to the other party on demand in the same currency as the overdue amount, for the
period from (and including) the date the party fails to make the payment due to the occurrence
of the relevant Illegality or Force Majeure Event (or, if later, the date the payment is no
longer deferred pursuant to Section 5(d)) to (but excluding) the earlier of the date the event
or circumstance giving rise to that Illegality or Force Majeure Event ceases to exist and the
date during the period upon which an Event of Default or Potential Event of Default with
respect to that party occurs (and excluding any period in respect of which interest or
compensation in respect of the overdue amount is due pursuant to clause (B) above), at the
Applicable Deferral Rate.
(4)
Compensation for Deferred Deliveries. If:?
(A)
been required to be settled by delivery;
a party does not perform any obligation that, but for Section 2(a)(iii), would have
(B)
a delivery is deferred pursuant to Section 5(d); or
(C)
Majeure Event at a time when any applicable Waiting Period has expired,
a party fails to make a delivery due to the occurrence of an Illegality or a Force
the party required (or that would otherwise have been required) to make the delivery will, to the
extent permitted by applicable law and subject to Section 6(c), compensate and pay interest to the
other party on demand (after, in the case of clauses (A) and (B) above, such delivery is required) if
and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.
Early Termination. Upon the occurrence or effective designation of an Early Termination Date in
(ii)
respect of a Transaction:?
Unpaid Amounts. For the purpose of determining an Unpaid Amount in respect of the relevant
(1)
Transaction, and to the extent permitted by applicable law, interest will accrue on the amount of any
payment obligation or the amount equal to the fair market value of any obligation required to be
settled by delivery included in such determination in the same currency as that amount, for the period
from (and including) the date the relevant obligation was (or would have been but for Section 2(a)
(iii) or 5(d)) required to have been performed to (but excluding) the relevant Early Termination Date,
at the Applicable Close-out Rate.
Interest on Early Termination Amounts. If an Early Termination Amount is due in respect
(2)
of such Early Termination Date, that amount will, to the extent permitted by applicable law, be paid
together with interest (before as well as after judgment) on that amount in the Termination Currency,
for the period from (and including) such Early Termination Date to (but excluding) the date the
amount is paid, at the Applicable Close-out Rate.
Interest Calculation. Any interest pursuant to this Section 9(h) will be calculated on the basis of
(iii)
daily compounding and the actual number of days elapsed.
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10.
Offices; Multibranch Parties
If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an
(a)
Office other than its head or home office represents to and agrees with the other party that, notwithstanding the place
of booking or its jurisdiction of incorporation or organisation, its obligations are the same in terms of recourse against
it as if it had entered into the Transaction through its head or home office, except that a party will not have recourse to
the head or home office of the other party in respect of any payment or delivery deferred pursuant to Section 5(d) for
so long as the payment or delivery is so deferred. This representation and agreement will be deemed to be repeated by
each party on each date on which the parties enter into a Transaction.
If a party is specified as a Multibranch Party in the Schedule, such party may, subject to clause (c) below, enter
(b)
into a Transaction through, book a Transaction in and make and receive payments and deliveries with respect to a
Transaction through any Office listed in respect of that party in the Schedule (but not any other Office unless otherwise
agreed by the parties in writing).
(c)
The Office through which a party enters into a Transaction will be the Office specified for that party in the
relevant Confirmation or as otherwise agreed by the parties in writing, and, if an Office for that party is not specified
in the Confirmation or otherwise agreed by the parties in writing, its head or home office. Unless the parties otherwise
agree in writing, the Office through which a party enters into a Transaction will also be the Office in which it books
the Transaction and the Office through which it makes and receives payments and deliveries with respect to the
Transaction. Subject to Section 6(b)(ii), neither party may change the Office in which it books the Transaction or the
Office through which it makes and receives payments or deliveries with respect to a Transaction without the prior
written consent of the other party.
11.
Expenses
A Defaulting Party will on demand indemnify and hold harmless the other party for and against all reasonable out-of-
pocket expenses, including legal fees, execution fees and Stamp Tax, incurred by such other party by reason of the
enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting
Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.
12.
Notices
Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner
(a)
described below (except that a notice or other communication under Section 5 or 6 may not be given by electronic
messaging system or e-mail) to the address or number or in accordance with the electronic messaging system or e-mail
details provided (see the Schedule) and will be deemed effective as indicated:?
(i)
if in writing and delivered in person or by courier, on the date it is delivered;
(ii)
if sent by telex, on the date the recipient’s answerback is received;
(iii)
if sent by facsimile transmission, on the date it is received by a responsible employee of the recipient
in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met
by a transmission report generated by the sender’s facsimile machine);
(iv)
on the date it is delivered or its delivery is attempted;
if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested),
(v)
if sent by electronic messaging system, on the date it is received; or
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(vi)
if sent by e-mail, on the date it is delivered,
unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that
communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business
Day, in which case that communication will be deemed given and effective on the first following day that is a Local
Business Day.
Change of Details. Either party may by notice to the other change the address, telex or facsimile number or
(b)
electronic messaging system or e-mail details at which notices or other communications are to be given to it.
13.
Governing Law and Jurisdiction
Governing Law. This Agreement will be governed by and construed in accordance with the law specified in
(a)
the Schedule.
Jurisdiction. With respect to any suit, action or proceedings relating to any dispute arising out of or in
(b)
connection with this Agreement (“Proceedings”), each party irrevocably:?
(i)
submits:?
(1)
if this Agreement is expressed to be governed by English law, to (A) the non-exclusive
jurisdiction of the English courts if the Proceedings do not involve a Convention Court and (B) the
exclusive jurisdiction of the English courts if the Proceedings do involve a Convention Court; or
(2)
if this Agreement is expressed to be governed by the laws of the State of New York, to the
non-exclusive jurisdiction of the courts of the State of New York and the United States District Court
located in the Borough of Manhattan in New York City;
(ii)
waives any objection which it may have at any time to the laying of venue of any Proceedings brought
in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction
over such party; and
(iii)
jurisdictions will not preclude the bringing of Proceedings in any other jurisdiction.
agrees, to the extent permitted by applicable law, that the bringing of Proceedings in any one or more
Service of Process. Each party irrevocably appoints the Process Agent, if any, specified opposite its name in
(c)
the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party’s
Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a
substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the
manner provided for notices in Section 12(a)(i), 12(a)(iii) or 12(a)(iv). Nothing in this Agreement will affect the right
of either party to serve process in any other manner permitted by applicable law.
Waiver of Immunities. Each party irrevocably waives, to the extent permitted by applicable law, with respect
(d)
to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty
or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction or order for specific
performance or recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution
or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in
the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim
any such immunity in any Proceedings.
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14.
Definitions
As used in this Agreement:?
“Additional Representation” has the meaning specified in Section 3.
“Additional Termination Event” has the meaning specified in Section 5(b).
“Affected Party” has the meaning specified in Section 5(b).
“Affected Transactions” means (a) with respect to any Termination Event consisting of an Illegality, Force Majeure
Event, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event
(which, in the case of an Illegality under Section 5(b)(i)(2) or a Force Majeure Event under Section 5(b)(ii)(2), means
all Transactions unless the relevant Credit Support Document references only certain Transactions, in which case those
Transactions and, if the relevant Credit Support Document constitutes a Confirmation for a Transaction, that Transaction)
and (b) with respect to any other Termination Event, all Transactions.
“Affiliate” means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the
person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common
control with the person. For this purpose, “control” of any entity or person means ownership of a majority of the voting
power of the entity or person.
“Agreement” has the meaning specified in Section 1(c).
“Applicable Close-out Rate” means:?
(a)
in respect of the determination of an Unpaid Amount:?
(i)
by a Defaulting Party, the Default Rate;
in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
(ii)
by a Non-defaulting Party, the Non-default Rate;
in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
(iii)
long as the deferral period continues, the Applicable Deferral Rate; and
in respect of obligations deferred pursuant to Section 5(d), if there is no Defaulting Party and for so
(iv)
pursuant to clause (iii) above), the Applicable Deferral Rate; and
in all other cases following the occurrence of a Termination Event (except where interest accrues
(b)
in respect of an Early Termination Amount:?
(i)
(determined in accordance with Section 6(d)(ii)) on which that amount is payable:?
for the period from (and including) the relevant Early Termination Date to (but excluding) the date
(1)
(2)
and
(3)
if the Early Termination Amount is payable by a Defaulting Party, the Default Rate;
if the Early Termination Amount is payable by a Non-defaulting Party, the Non-default Rate;
in all other cases, the Applicable Deferral Rate; and
21
ISDA® 2002
(ii)
that amount is payable to (but excluding) the date of actual payment:?
for the period from (and including) the date (determined in accordance with Section 6(d)(ii)) on which
(1)
if a party fails to pay the Early Termination Amount due to the occurrence of an event or
circumstance which would, if it occurred with respect to a payment or delivery under a Transaction,
constitute or give rise to an Illegality or a Force Majeure Event, and for so long as the Early Termination
Amount remains unpaid due to the continuing existence of such event or circumstance, the Applicable
Deferral Rate;
(2)
in respect of which clause (1) above applies), the Default Rate;
if the Early Termination Amount is payable by a Defaulting Party (but excluding any period
(3)
period in respect of which clause (1) above applies), the Non-default Rate; and
if the Early Termination Amount is payable by a Non-defaulting Party (but excluding any
(4)
in all other cases, the Termination Rate.
“Applicable Deferral Rate” means:?
for the purpose of Section 9(h)(i)(3)(A), the rate certified by the relevant payer to be a rate offered to the payer
(a)
by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be selected
in good faith by the payer for the purpose of obtaining a representative rate that will reasonably reflect conditions
prevailing at the time in that relevant market;
(b)
for purposes of Section 9(h)(i)(3)(B) and clause (a)(iii) of the definition of Applicable Close-out Rate, the rate
certified by the relevant payer to be a rate offered to prime banks by a major bank in a relevant interbank market for
overnight deposits in the applicable currency, such bank to be selected in good faith by the payer after consultation
with the other party, if practicable, for the purpose of obtaining a representative rate that will reasonably reflect conditions
prevailing at the time in that relevant market; and
(c)
for purposes of Section 9(h)(i)(3)(C) and clauses (a)(iv), (b)(i)(3) and (b)(ii)(1) of the definition of Applicable
Close-out Rate, a rate equal to the arithmetic mean of the rate determined pursuant to clause (a) above and a rate per
annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were
to fund or of funding the relevant amount.
“Automatic Early Termination” has the meaning specified in Section 6(a).
“Burdened Party” has the meaning specified in Section 5(b)(iv).
“Change in Tax Law” means the enactment, promulgation, execution or ratification of, or any change in or amendment
to, any law (or in the application or official interpretation of any law) that occurs after the parties enter into the relevant
Transaction.
“Close-out Amount” means, with respect to each Terminated Transaction or each group of Terminated Transactions
and a Determining Party, the amount of the losses or costs of the Determining Party that are or would be incurred under
then prevailing circumstances (expressed as a positive number) or gains of the Determining Party that are or would be
realised under then prevailing circumstances (expressed as a negative number) in replacing, or in providing for the
Determining Party the economic equivalent of, (a) the material terms of that Terminated Transaction or group of
Terminated Transactions, including the payments and deliveries by the parties under Section 2(a)(i) in respect of that
Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early
Termination Date, have been required after that date (assuming satisfaction of the conditions precedent in
22
ISDA® 2002
Section 2(a)(iii)) and (b) the option rights of the parties in respect of that Terminated Transaction or group of Terminated
Transactions.
Any Close-out Amount will be determined by the Determining Party (or its agent), which will act in good faith and
use commercially reasonable procedures in order to produce a commercially reasonable result. The Determining Party
may determine a Close-out Amount for any group of Terminated Transactions or any individual Terminated Transaction
but, in the aggregate, for not less than all Terminated Transactions. Each Close-out Amount will be determined as of
the Early Termination Date or, if that would not be commercially reasonable, as of the date or dates following the Early
Termination Date as would be commercially reasonable.
Unpaid Amounts in respect of a Terminated Transaction or group of Terminated Transactions and legal fees and out-
of-pocket expenses referred to in Section 11 are to be excluded in all determinations of Close-out Amounts.
In determining a Close-out Amount, the Determining Party may consider any relevant information, including, without
limitation, one or more of the following types of information: ?
(i)
quotations (either firm or indicative) for replacement transactions supplied by one or more third parties that
may take into account the creditworthiness of the Determining Party at the time the quotation is provided and the terms
of any relevant documentation, including credit support documentation, between the Determining Party and the third
party providing the quotation;
(ii)
information consisting of relevant market data in the relevant market supplied by one or more third parties
including, without limitation, relevant rates, prices, yields, yield curves, volatilities, spreads, correlations or other
relevant market data in the relevant market; or
(iii)
information of the types described in clause (i) or (ii) above from internal sources (including any of the
Determining Party’s Affiliates) if that information is of the same type used by the Determining Party in the regular
course of its business for the valuation of similar transactions.
The Determining Party will consider, taking into account the standards and procedures described in this definition,
quotations pursuant to clause (i) above or relevant market data pursuant to clause (ii) above unless the Determining
Party reasonably believes in good faith that such quotations or relevant market data are not readily available or would
produce a result that would not satisfy those standards. When considering information described in clause (i), (ii) or
(iii) above, the Determining Party may include costs of funding, to the extent costs of funding are not and would not
be a component of the other information being utilised. Third parties supplying quotations pursuant to clause (i) above
or market data pursuant to clause (ii) above may include, without limitation, dealers in the relevant markets, end-users
of the relevant product, information vendors, brokers and other sources of market information.
Without duplication of amounts calculated based on information described in clause (i), (ii) or (iii) above, or other
relevant information, and when it is commercially reasonable to do so, the Determining Party may in addition consider
in calculating a Close-out Amount any loss or cost incurred in connection with its terminating, liquidating or re-
establishing any hedge related to a Terminated Transaction or group of Terminated Transactions (or any gain resulting
from any of them).
Commercially reasonable procedures used in determining a Close-out Amount may include the following:?
(1)
application to relevant market data from third parties pursuant to clause (ii) above or information from internal
sources pursuant to clause (iii) above of pricing or other valuation models that are, at the time of the determination of
the Close-out Amount, used by the Determining Party in the regular course of its business in pricing or valuing
transactions between the Determining Party and unrelated third parties that are similar to the Terminated Transaction
or group of Terminated Transactions; and
23
ISDA® 2002
(2)
application of different valuation methods to Terminated Transactions or groups of Terminated Transactions
depending on the type, complexity, size or number of the Terminated Transactions or group of Terminated Transactions.
“Confirmation” has the meaning specified in the preamble.
“consent” includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control
consent.
“Contractual Currency” has the meaning specified in Section 8(a).
“Convention Court” means any court which is bound to apply to the Proceedings either Article 17 of the 1968 Brussels
Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters or Article 17 of the
1988 Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.
“Credit Event Upon Merger” has the meaning specified in Section 5(b).
“Credit Support Document” means any agreement or instrument that is specified as such in this Agreement.
“Credit Support Provider” has the meaning specified in the Schedule.
“Cross-Default” means the event specified in Section 5(a)(vi).
“Default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant
payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum.
“Defaulting Party” has the meaning specified in Section 6(a).
“Designated Event” has the meaning specified in Section 5(b)(v).
“Determining Party” means the party determining a Close-out Amount.
“Early Termination Amount” has the meaning specified in Section 6(e).
“Early Termination Date” means the date determined in accordance with Section 6(a) or 6(b)(iv).
“electronic messages” does not include e-mails but does include documents expressed in markup languages, and
“electronic messaging system” will be construed accordingly.
“English law” means the law of England and Wales, and “English” will be construed accordingly.
“Event of Default” has the meaning specified in Section 5(a) and, if applicable, in the Schedule.
“Force Majeure Event” has the meaning specified in Section 5(b).
“General Business Day” means a day on which commercial banks are open for general business (including dealings
in foreign exchange and foreign currency deposits).
“Illegality” has the meaning specified in Section 5(b).
24
ISDA® 2002
“Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this
Agreement but for a present or former connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation,
a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having
had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely
from such recipient or related person having executed, delivered, performed its obligations or received a payment under,
or enforced, this Agreement or a Credit Support Document).
“law” includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant
governmental revenue authority), and “unlawful” will be construed accordingly.
“Local Business Day” means (a) in relation to any obligation under Section 2(a)(i), a General Business Day in the
place or places specified in the relevant Confirmation and a day on which a relevant settlement system is open or
operating as specified in the relevant Confirmation or, if a place or a settlement system is not so specified, as otherwise
agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this
Agreement, (b) for the purpose of determining when a Waiting Period expires, a General Business Day in the place
where the event or circumstance that constitutes or gives rise to the Illegality or Force Majeure Event, as the case may
be, occurs, (c) in relation to any other payment, a General Business Day in the place where the relevant account is
located and, if different, in the principal financial centre, if any, of the currency of such payment and, if that currency
does not have a single recognised principal financial centre, a day on which the settlement system necessary to
accomplish such payment is open, (d) in relation to any notice or other communication, including notice contemplated
under Section 5(a)(i), a General Business Day (or a day that would have been a General Business Day but for the
occurrence of an event or circumstance which would, if it occurred with respect to payment, delivery or compliance
related to a Transaction, constitute or give rise to an Illegality or a Force Majeure Event) in the place specified in the
address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where
the relevant new account is to be located and (e) in relation to Section 5(a)(v)(2), a General Business Day in the relevant
locations for performance with respect to such Specified Transaction.
“Local Delivery Day” means, for purposes of Sections 5(a)(i) and 5(d), a day on which settlement systems necessary
to accomplish the relevant delivery are generally open for business so that the delivery is capable of being accomplished
in accordance with customary market practice, in the place specified in the relevant Confirmation or, if not so specified,
in a location as determined in accordance with customary market practice for the relevant delivery.
“Master Agreement” has the meaning specified in the preamble.
“Merger Without Assumption” means the event specified in Section 5(a)(viii).
“Multiple Transaction Payment Netting” has the meaning specified in Section 2(c).
“Non-affected Party” means, so long as there is only one Affected Party, the other party.
“Non-default Rate” means the rate certified by the Non-defaulting Party to be a rate offered to the Non-defaulting
Party by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be
selected in good faith by the Non-defaulting Party for the purpose of obtaining a representative rate that will reasonably
reflect conditions prevailing at the time in that relevant market.
“Non-defaulting Party” has the meaning specified in Section 6(a).
“Office” means a branch or office of a party, which may be such party’s head or home office.
“Other Amounts” has the meaning specified in Section 6(f).
25
ISDA® 2002
“Payee” has the meaning specified in Section 6(f).
“Payer” has the meaning specified in Section 6(f).
“Potential Event of Default” means any event which, with the giving of notice or the lapse of time or both, would
constitute an Event of Default.
“Proceedings” has the meaning specified in Section 13(b).
“Process Agent” has the meaning specified in the Schedule.
“rate of exchange” includes, without limitation, any premiums and costs of exchange payable in connection with the
purchase of or conversion into the Contractual Currency.
“Relevant Jurisdiction” means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised,
managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes
of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from
or through which such payment is made.
“Schedule” has the meaning specified in the preamble.
“Scheduled Settlement Date” means a date on which a payment or delivery is to be made under Section 2(a)(i) with
respect to a Transaction.
“Specified Entity” has the meaning specified in the Schedule.
“Specified Indebtedness” means, subject to the Schedule, any obligation (whether present or future, contingent or
otherwise, as principal or surety or otherwise) in respect of borrowed money.
“Specified Transaction” means, subject to the Schedule, (a) any transaction (including an agreement with respect to
any such transaction) now existing or hereafter entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any
Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is not a
Transaction under this Agreement but (i) which is a rate swap transaction, swap option, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond
option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency
swap transaction, cross-currency rate swap transaction, currency option, credit protection transaction, credit swap,
credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse
repurchase transaction, buy/sell-back transaction, securities lending transaction, weather index transaction or forward
purchase or sale of a security, commodity or other financial instrument or interest (including any option with respect
to any of these transactions) or (ii) which is a type of transaction that is similar to any transaction referred to in clause
(i) above that is currently, or in the future becomes, recurrently entered into in the financial markets (including terms
and conditions incorporated by reference in such agreement) and which is a forward, swap, future, option or other
derivative on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities
or other debt instruments, economic indices or measures of economic risk or value, or other benchmarks against which
payments or deliveries are to be made, (b) any combination of these transactions and (c) any other transaction identified
as a Specified Transaction in this Agreement or the relevant confirmation.
“Stamp Tax” means any stamp, registration, documentation or similar tax.
“Stamp Tax Jurisdiction” has the meaning specified in Section 4(e).
26
ISDA® 2002
“Tax” means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest,
penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar tax.
“Tax Event” has the meaning specified in Section 5(b).
“Tax Event Upon Merger” has the meaning specified in Section 5(b).
“Terminated Transactions” means, with respect to any Early Termination Date, (a) if resulting from an Illegality or a
Force Majeure Event, all Affected Transactions specified in the notice given pursuant to Section 6(b)(iv), (b) if resulting
from any other Termination Event, all Affected Transactions and (c) if resulting from an Event of Default, all Transactions
in effect either immediately before the effectiveness of the notice designating that Early Termination Date or, if Automatic
Early Termination applies, immediately before that Early Termination Date.
“Termination Currency” means (a) if a Termination Currency is specified in the Schedule and that currency is freely
available, that currency, and (b) otherwise, euro if this Agreement is expressed to be governed by English law or United
States Dollars if this Agreement is expressed to be governed by the laws of the State of New York.
“Termination Currency Equivalent” means, in respect of any amount denominated in the Termination Currency, such
Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination
Currency (the “Other Currency”), the amount in the Termination Currency determined by the party making the relevant
determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination
Date, or, if the relevant Close-out Amount is determined as of a later date, that later date, with the Termination Currency
at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase
of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange
agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other
Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise
will be agreed by the parties.
“Termination Event” means an Illegality, a Force Majeure Event, a Tax Event, a Tax Event Upon Merger or, if specified
to be applicable, a Credit Event Upon Merger or an Additional Termination Event.
“Termination Rate” means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of
any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts.
“Threshold Amount” means the amount, if any, specified as such in the Schedule.
“Transaction” has the meaning specified in the preamble.
“Unpaid Amounts” owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in
respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but
for Section 2(a)(iii) or due but for Section 5(d)) to such party under Section 2(a)(i) or 2(d)(i)(4) on or prior to such
Early Termination Date and which remain unpaid as at such Early Termination Date, (b) in respect of each Terminated
Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii) or 5
(d)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not
been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or
would have been) required to be delivered and (c) if the Early Termination Date results from an Event of Default,
a Credit Event Upon Merger or an Additional Termination Event in respect of which all outstanding Transactions
are Affected Transactions, any Early Termination Amount due prior to such Early Termination Date and which
remains unpaid as of such Early Termination Date, in each case together with any amount of interest accrued or
other
27
ISDA® 2002
compensation in respect of that obligation or deferred obligation, as the case may be, pursuant to Section 9(h)(ii)
(1) or (2), as appropriate. The fair market value of any obligation referred to in clause (b) above will be determined
as of the originally scheduled date for delivery, in good faith and using commercially reasonable procedures, by
the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it will be the average
of the Termination Currency Equivalents of the fair market values so determined by both parties.
“Waiting Period” means:?
(a)
in respect of an event or circumstance under Section 5(b)(i), other than in the case of Section 5(b)(i)(2) where
the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period
will apply), a period of three Local Business Days (or days that would have been Local Business Days but for the
occurrence of that event or circumstance) following the occurrence of that event or circumstance; and
(b)
in respect of an event or circumstance under Section 5(b)(ii), other than in the case of Section 5(b)(ii)(2) where
the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period
will apply), a period of eight Local Business Days (or days that would have been Local Business Days but for the
occurrence of that event or circumstance) following the occurrence of that event or circumstance.
IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect
from the date specified on the first page of this document.
CITIZENS BANK OF PENNSYLVANIA
LKQ CORPORATION
/s/ MICHAEL T. LIBERATORE
By:
Name: Michael T. Liberatore
Title:
VP
By:
Name:
Title:
/s/ JOHN S. QUINN
John S. Quinn
Executive Vice President & C.F.O.
28
ISDA® 2002
ISDA
International Swaps and Derivatives Association, Inc.
SCHEDULE
to the
2002 Master Agreement
dated as of September 18, 2013
between
CITIZENS BANK OF PENNSYLVANIA,
a bank organized under the laws of Pennsylvania,
(“Party A”)
and
LKQ CORPORATION,
a corporation organized and existing under the laws of Delaware,
(“Party B”)
Part 1
Termination Provisions
(a)
“Specified Entity” means in relation to Party A for the purpose of Sections 5(a)(v), 5(a)(vi),
5(a)(vii) and 5(b)(v): none;
“Specified Entity” means in relation to Party B for the purpose of Sections 5(a)(v), 5(a)(vi),
5(a)(vii) and 5(b)(v): none.
“Specified Transaction” will have the meaning specified in Section 14 but shall also include
any transaction with respect to margin loans, cash loans and short sales of any financial
instrument, and as amended by inserting the words, “or RBS Citizens, N.A.” immediately
after “Agreement” in the second line thereof.
The “Cross-Default” provisions of Section 5(a)(vi):
will apply to Party A
and will apply to Party B.
(b)
(c)
In connection therewith, “Specified Indebtedness” will not have the meaning specified in
Section 14, and such definition shall be replaced by the following: “any obligation in respect
of the payment or repayment of moneys (whether present or future, contingent or otherwise,
as principal or surety or otherwise), including, but without limitation, any obligation in
respect of borrowed money except that such term shall not include obligations in respect of
deposits received in the ordinary course of a party’s banking business.”
“Threshold Amount” means with respect to Party A an amount equal to three percent (3%)
of the stockholders’ equity (however described) of RBS Citizens Financial Group, Inc. as
shown on the most recent annual audited financial statements of RBS Citizens Financial
Group, Inc. and with respect to Party B, $75,000,000.
“Credit Agreement” means the Second Amended and Restated Credit Agreement dated as
of March 25, 2011, as amended and restated as of September 30, 2011, as further amended
and restated as of May 3, 2013, among LKQ Corporation and LKQ Delaware LLP, the
Subsidiary Borrowers from time to time party thereto, the Lenders party thereto from time
to time, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America,
N.A., as Syndication Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd. and RBS Citizens,
N.A, as Co-Documentation Agents, as amended, extended, supplemented, restated or
otherwise modified in writing from time to time.
(d)
(e)
The “Credit Event Upon Merger” provisions of Section 5(b)(v):
will apply to Party A
will apply to Party B
The “Automatic Early Termination” provision of Section 6(a):
will not apply to Party A
will not apply to Party B.
(f)
“Termination Currency” means United States Dollars.
(g)
Additional Termination Event will apply.
It shall be an Additional Termination Event hereunder, with respect to which Party B shall
be the sole Affected Party, if (1) an Event of Default (as defined in the Credit Agreement)
occurs under the Credit Agreement, or if (2) the Credit Agreement shall be paid or prepaid
in full, expire, terminate, or otherwise cease to be in full effect.
Part 2
Tax Representations
(a)
Payer Tax Representations. For the purpose of Section 3(e) of this Agreement, Party A and
Party B will make the following representation:-
2
It is not required by any applicable law, as modified by the practice of any relevant
governmental revenue authority, of any Relevant Jurisdiction to make any deduction or
withholding for or on account of any Tax from any payment (other than interest under Section
9(h) of this Agreement) to be made by it to the other party under this Agreement. In making
this representation, it may rely on (i) the accuracy of any representations made by the other
party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the agreement
contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness
of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement and (iii) the satisfaction of the agreement of the other party contained in Section
4(d) of this Agreement, except that it will not be a breach of this representation where reliance
is placed on clause (ii) above and the other party does not deliver a form or document under
Section 4(a)(iii) by reason of material prejudice to its legal or commercial position.
(b)
Payee Tax Representations. For the purpose of Section 3(f) of this Agreement, Party A and
Party B will make the following representations specified below, if any:-
(i)
The following representations will apply to Party A:
Party A is a bank organized under the laws of Pennsylvania, is a “U.S. person” (as that
term is used in section 1.1441-4(a)(3)(ii) of United States Treasury Regulations) for
U.S. federal income tax purposes, and its U.S. tax identification number is
23-3097422.
(ii)
The following representations will apply to Party B:
Party B is a corporation created or organized under the laws of the State of Delaware
and the federal taxpayer identification number is 36-4215970.
Part 3
Agreement to Deliver Documents
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the
following documents:
(a)
Tax forms, documents or certificates to be delivered are:
Party required
to
deliver
document
Party B
Document
Internal Revenue Service Form W-9
Date by which to be
delivered
Upon execution and
delivery of this
Agreement
3
(b)
Other documents to be delivered are:-
Party required
to deliver
document
Party A and
Party B
Form/Document/Certificate
Certified copies of all corporate,
partnership or membership authorizations,
as the case may be, and any other
documents with respect to the execution,
delivery and performance of this
Agreement and any Credit Support
Document
Party A and
Party B
Certificate of authority and specimen
signatures of individuals executing this
Agreement and any Credit Support
Document
Party A
Party B
Annual Report of RBS Citizens Financial
Group, Inc. containing audited,
consolidated financial statements certified
by independent certified public accountants
and prepared in accordance with generally
accepted accounting principles in the
country in which such party is organized
Annual Report of Party B and of any
Credit Support Provider thereof containing
audited, consolidated financial statements
certified by independent certified public
accountants and prepared in accordance
with generally accepted accounting
principles in the country in which such
party and such Credit Support Provider is
organized
Date by which
to be delivered
Upon execution and
delivery of this
Agreement
Covered by
Section 3(d)
Representation
Yes
Yes
Yes
Yes
Upon execution and
delivery of this
Agreement and
thereafter upon request
of the other party
Upon request,
provided however that
publication of such
financial statements on
RBS Citizens
Financial Group, Inc.’s
website shall
constitute delivery for
purposes of this
provision, to the extent
accessible to Party A.
To be made available
on www.lkqcorp.com
as soon as available
and in any event
within 90 days after
the end of each fiscal
year of Party B and of
the Credit Support
Provider
4
Party required
to deliver
document
Party B
Form/Document/Certificate
Quarterly Financial Statements of Party B
and any Credit Support Provider thereof
containing unaudited, consolidated
financial statements of such party’s fiscal
quarter prepared in accordance with
generally accepted accounting principles in
the country in which such party and such
Credit Support Provider is organized
Date by which
to be delivered
To be made available
on www.lkqcorp.com
as soon as available
and in any event
within 45 days after
the end of each fiscal
quarter of Party B and
of the Credit Support
Provider
Covered by
Section 3(d)
Representation
Yes
Part 4
Miscellaneous
(a)
Address for Notices. For the purpose of Section 12(a) of this Agreement:-
Address for notice or communications to Party A:
Address:
Citizens Bank of Pennsylvania
One Citizens Plaza
Providence, RI 02903
Attention:
Treasury Operations
Telephone No.:
Facsimile No.:
(401) 282-7250
(401) 282-7718
with a copy to:
Address:
Citizens Bank of Pennsylvania
28 State Street
Boston, MA 02109
Attention:
Legal Department
Telephone No.:
Facsimile No.:
(617) 725-5813
(617) 725-5620
Address for notice or communications to Party B:
Address:
LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, IL 60661
Attention: Jack B. Brooks
5
Telephone No.:
Facsimile No.:
Email Address:
with a copy to:
Address:
312/621-2774
866/669-2811
jbbrooks@lkqcorp.com
LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, IL 60661
Attention: Victor Casini
Telephone No.:
Facsimile No.:
Email Address:
312/621-2754
312/280-3730
victorcasini@lkqccorp.com
(b)
Process Agent. For the purpose of Section 13(c):
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
(c)
Offices. The provisions of Section 10(a) will apply to this Agreement.
(d) Multibranch Party. For the purpose of Section 10(b) of this Agreement:-
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e)
Calculation Agent. The Calculation Agent is Party A.
(f)
Credit Support Document. Details of any Credit Support Document:-
Each of the following, as amended, extended, supplemented or otherwise modified in writing
from time to time, is a “Credit Support Document”:
In relation to Party B, the Credit Agreement, and the Security Documents, or the Collateral
Documents, as the case may be, as defined in the Credit Agreement.
Party B agrees that the security interests in collateral granted to Party A or an Affiliate of
Party A by Party B and any Credit Support Provider under the foregoing Credit Support
Documents shall secure the obligations of Party B to Party A under this Agreement.
(g)
Credit Support Provider.
Credit Support Provider means in relation to party A: Not applicable.
6
Credit Support Provider means in relation to Party B: Subsidiary Borrowers and Subsidiary
Guarantors, each as defined in the Credit Agreement, excluding, however, any Subsidiary,
as defined in the Credit Agreement, that would become an Affected Foreign Subsidiary, as
defined in the Credit Agreement, if it guaranteed or became liable for, or granted any security
interests to secure, the obligations under this Agreement or any Transaction and excluding
any Subsidiary that is not an “Eligible Contract Participant” as such term is defined in the
U.S. Commodity Exchange Act, as amended.
(h)
(i)
Governing Law. This Agreement and any and all controversies arising out of or in relation
to this Agreement shall be governed by and construed in accordance with the laws of the
State of New York (without reference to its conflict of laws doctrine).
Netting of Payments. Unless the parties otherwise so agree, Section 2(c)(ii) of this
Agreement shall apply.
(j)
“Affiliate” will have the meaning specified in Section 14 of this Agreement.
(k)
Absence of Litigation. For the purpose of Section 3(c):-
“Specified Entity” means in relation to Party A, none;
“Specified Entity” means in relation to Party B, none.
(l)
No Agency. The provisions of Section 3(g) will apply to this Agreement.
(m)
Additional Representation will apply. For the purpose of Section 3 of this Agreement, each
of the following will constitute an Additional Representation:-
(i)
Relationship Between Parties. Each party will be deemed to represent to the other
party on the date on which it enters into a Transaction that (absent a written agreement
between the parties that expressly imposes affirmative obligations to the contrary
for that Transaction):-
(1)
Non-Reliance. It is acting for its own account, and, it has made its own
independent decisions to enter into that Transaction and as to whether that
Transaction is appropriate or proper for it based upon its own judgment and
upon advice from such advisors as it has deemed necessary. It is not relying
on any communication (written or oral) of the other party as investment
advice or as a recommendation to enter into that Transaction, it being
understood that information and explanations related to the terms and
conditions of a Transaction shall not be considered investment advice or a
recommendation to enter into that Transaction. No communication (written
or oral) received from the other party will be deemed to be an assurance or
guarantee as to the expected results of that Transaction.
(2)
Assessment and Understanding. It is capable of assessing the merits of and
understanding (on its own behalf or through independent professional
advice), and understands and accepts, the terms, conditions and risks of
7
that Transaction. It is also capable of assuming, and assumes, the risks of
that Transaction.
(3)
Status of Parties. The other party is not acting as a fiduciary for or an advisor
to it in respect of that Transaction.
(ii)
Each party makes the representations below (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into):
(1)
(2)
Eligible Contract Participant. Each party will be deemed to represent to the
other party on each date on which a Transaction is entered into that it is an “eligible
contract participant” and that each guarantor of its Swap Obligations (as defined
below), if any, is an “eligible contract participant,” as such term is defined in the
U.S. Commodity Exchange Act, as amended. For purposes of this provision, “Swap
Obligation” means an obligation incurred with respect to a transaction that is a
“swap” as defined in the Section 1a(47) of the Commodity Exchange Act and CFTC
Regulation 1.3(xxx).
Line of Business. It has entered into this Agreement (including each
Transaction evidenced hereby) in conjunction with its line of business
(including financial intermediation services) or the financing of its business.
It represents and warrants that all transactions effected under this Agreement
(a) will be appropriate in the conduct and management of its business, (b)
will be entered into for non-speculative purposes, and (c) as to Party B, Party
B represents that all Transactions effected under this Agreement constitute
transactions entered into for purposes of hedging or managing risks related
to its assets or liabilities as currently owned or incurred, or likely to be owned
or incurred in the conduct of its business.
(n)
Recording of Conversations. Each party to this Agreement acknowledges and agrees to
the recording of conversations between trading and marketing personnel of the parties to
this Agreement whether by one or other or both of the parties or their agents.
Part 5
Other Provisions
(a)
Financial Statements. Section 3(d) is hereby amended by adding in the third line thereof
after the word “respect” and before the period:
“or, in the case of financial statements, a fair presentation of the financial condition of the
relevant party.”
8
(b)
2002 Master Agreement Protocol. Annexes 1 to 18 and Section 6 of the ISDA 2002 Master
Agreement Protocol as published by the International Swaps and Derivatives Association,
Inc. on July 15, 2003 are incorporated into and apply to this Agreement. References in those
definitions and provisions to any ISDA Master Agreement will be deemed to be references
to this Master Agreement.
(c) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
ANY CREDIT SUPPORT DOCUMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
(d) Method of Notice. Section 12(a)(ii) of the Master Agreement is deleted in its entirety.
(e)
Safe Harbors. Each party to this Agreement acknowledges that:
(i)
(ii)
(iii)
This Agreement, including any Credit Support Document, is a “master netting
agreement” as defined in the U.S. Bankruptcy Code (the “Code”), and a “netting
contract” as defined in the netting provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (“FDICIA”), and this Agreement, including
any Credit Support Document, and each Transaction hereunder is of a type set forth
in Section 561(a)(1)-(5) of the Code;
Party A is a “master netting agreement participant,” a “financial institution,” a
“financial participant,”‘ a “forward contract merchant” and a “swap participant” as
defined in the Code, and a “financial institution” as defined in the netting provisions
of FDICIA;
The remedies provided herein, and in any Credit Support Document, are the remedies
referred to in Section 561(a), Sections 362(b)(6), (7), (17) and (27), and Section 362
(o) of the Code, and in Section 11(e)(8)(A) and (C) of the Federal Deposit Insurance
Act;
(iv) All transfers of cash, securities or other property under or in connection with this
Agreement, any Credit Support Document or any Transaction hereunder are “margin
payments,” “settlement payments” and “transfers” under Sections 546(c), (f), (g) or
(j), and under Section 548(d)(2) of the Code; and
(v)
Each obligation under this Agreement, any Credit Support Document or any
Transaction hereunder is an obligation to make a “margin payment,” “settlement
payment” and “payment” within the meaning of Sections 362, 560 and 561 of the
Code.
(f)
Hedge Agreement. Party B represents to Party A (which representation will be deemed to
be repeated by Party B on each date on which a Transaction is entered into) that this
Agreement is a Hedge Agreement as defined in the Credit Agreement.
9
(g) Withholding Tax Imposed on Payments to Non-U.S. Counterparties under the United
States Foreign Account Tax Compliance Act. (a) For purposes of any Payer Tax
Representation, the words “any Tax from any payment” shall not include any tax imposed
under Sections 1471 and 1472 of the Internal Revenue Code of 1986, as amended (or the
United States Treasury regulations or other guidance issued or any agreements entered into
thereunder) (“FATCA Withholding Tax”); (b) for the avoidance of doubt the parties agree
that for purposes of Section 2(d) of this Agreement the deduction or withholding of FATCA
Withholding Tax is required by applicable law; and (c) the definition of “Indemnifiable Tax”
shall not include any FATCA Withholding Tax.
(h)
(i)
Confirmations. For each Transaction that Party A and Party B agree to enter into under this
Agreement, Party A shall use reasonable efforts to promptly send to Party B a Confirmation
setting forth the terms of such Transaction by facsimile or other electronic means. Unless
Party B objects to the terms of a Transaction contained in any Confirmation within three
(3) Local Business Days of receipt thereof, the terms of such Confirmation shall be deemed
correct and accepted absent manifest error, unless a corrected Confirmation is sent by
Party A, within such three-day period, in which case Party B shall have two (2) Local
Business Days after receipt thereof to object to the terms contained in such corrected
Confirmation.
Only ECPs Can Be Guarantors. Notwithstanding anything to the contrary in this Agreement
or in any credit agreement or guaranty, no person providing a guaranty of any obligation of
Party B under this Agreement (each such person, a “Guarantor”) shall be deemed to be a
guarantor of, or to have granted a security interest to secure any guaranty by Guarantor of,
any Swap Obligation (as defined below) if such Guarantor is not an “Eligible Contract
Participant” as defined in the Commodity Exchange Act and the applicable rules and
regulations issued by the Commodity Futures Trading Commission and/or the Securities
and Exchange Commission (collectively, and as now or hereafter in effect, “the ECP Rules”)
at the time Party B entered into any applicable Transaction (each such Swap Obligation, an
“Excluded Swap Obligation”), but solely to the extent that the providing of such guaranty
by such Guarantor, or grant of a security interest to secure any guaranty by Guarantor, of
any Swap Obligation by such Guarantor would violate the ECP Rules or other applicable
law or regulation. Except as expressly set forth in the preceding sentence, nothing in this
Agreement shall be deemed to restrict, reduce or waive any obligation of any such Guarantor
under any guaranty or other Credit Support Document, and such guaranty or other Credit
Support Document shall continue to guarantee, or grant a security interest to secure, as
applicable, in accordance with its terms, each Swap Obligation that is not an Excluded Swap
Obligation.
The term “Swap Obligation” means any obligation of any person to pay or perform under
any Transaction that constitutes a “swap” as defined in the Commodity Exchange Act.
(j)
USA PATRIOT Act Notice. Party A hereby notifies Party B that pursuant to the requirements
of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the
“Act”), it is required to obtain, verify and record information that identifies Party B, which
information includes the name and address of Party B and other information that will allow
Party A to identify Party B in accordance with the Act.
10
(k)
The 1998 FX and Currency Option Definitions. Unless the parties expressly agree
otherwise in the Confirmation, any Confirmation made by the parties in relation to a
transaction which is an FX Transaction or a Currency Option Transaction as defined in
the 1998 FX and Currency Option Definitions published by ISDA, the Emerging Markets
Traders Association and the Foreign Exchange Committee (the "FX and Currency Option
Definitions") will be deemed to incorporate the FX and Currency Option Definitions.
IN WITNESS WHEREOF, the parties have executed this Schedule by their duly authorized
officers as of the date hereof:
CITIZENS BANK OF PENNSYLVANIA
LKQ CORPORATION
/s/ MICHAEL T. LIBERATORE
By:
Name: Michael T. Liberatore
Title:
Date:
VP
10/30/13
By:
Name:
Title:
Date:
/s/ JOHN S. QUINN
John S. Quinn
Executive Vice President & C.F.O.
October 4, 2013
11
Exhibit 10.25
ISDA
2002 MASTER AGREEMENT
International Swaps and Derivatives Association, Inc.
dated as of
September 18, 2013
RBS CITIZENS, N.A.
and
LKQ CORPORATION
have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed
by this 2002 Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming
evidence (each a “Confirmation”) exchanged between the parties or otherwise effective for the purpose of confirming
or evidencing those Transactions. This 2002 Master Agreement and the Schedule are together referred to as this “Master
Agreement”.
Accordingly, the parties agree as follows:?
1.
Interpretation
Definitions. The terms defined in Section 14 and elsewhere in this Master Agreement will have the meanings
(a)
therein specified for the purpose of this Master Agreement.
Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions
(b)
of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement, such Confirmation will prevail for the purpose of the relevant Transaction.
Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all
(c)
Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the
parties would not otherwise enter into any Transactions.
2.
(a)
Obligations
General Conditions.
(i)
subject to the other provisions of this Agreement.
Each party will make each payment or delivery specified in each Confirmation to be made by it,
(ii)
Payments under this Agreement will be made on the due date for value on that date in the place of
the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required currency. Where settlement is
by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the
manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or
elsewhere in this Agreement.
Copyright © 2002 by International Swaps and Derivatives Association, Inc.
(iii)
Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no
Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing,
(2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred
or been effectively designated and (3) each other condition specified in this Agreement to be a condition
precedent for the purpose of this Section 2(a)(iii).
Change of Account. Either party may change its account for receiving a payment or delivery by giving notice
(b)
to the other party at least five Local Business Days prior to the Scheduled Settlement Date for the payment or delivery
to which such change applies unless such other party gives timely notice of a reasonable objection to such change.
(c)
Netting of Payments. If on any date amounts would otherwise be payable:?
(i)
in the same currency; and
(ii)
in respect of the same Transaction,
by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be
automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one
party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation
upon the party by which the larger aggregate amount would have been payable to pay to the other party the excess of
the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount and payment obligation will be determined
in respect of all amounts payable on the same date in the same currency in respect of those Transactions, regardless of
whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or
any Confirmation by specifying that “Multiple Transaction Payment Netting” applies to the Transactions identified as
being subject to the election (in which case clause (ii) above will not apply to such Transactions). If Multiple Transaction
Payment Netting is applicable to Transactions, it will apply to those Transactions with effect from the starting date
specified in the Schedule or such Confirmation, or, if a starting date is not specified in the Schedule or such Confirmation,
the starting date otherwise agreed by the parties in writing. This election may be made separately for different groups
of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments
or deliveries.
(d)
Deduction or Withholding for Tax.
Gross-Up. All payments under this Agreement will be made without any deduction or withholding
(i)
for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct
or withhold, then that party (“X”) will:?
(1)
promptly notify the other party (“Y”) of such requirement;
(2)
pay to the relevant authorities the full amount required to be deducted or withheld (including
the full amount required to be deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is
required or receiving notice that such amount has been assessed against Y;
(3)
reasonably acceptable to Y, evidencing such payment to such authorities; and
promptly forward to Y an official receipt (or a certified copy), or other documentation
2
ISDA® 2002
(4)
if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is
otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the
net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against
X or Y) will equal the full amount Y would have received had no such deduction or withholding been
required. However, X will not be required to pay any additional amount to Y to the extent that it
would not be required to be paid but for:?
(A)
(a)(i), 4(a)(iii) or 4(d); or
the failure by Y to comply with or perform any agreement contained in Section 4
(B)
the failure of a representation made by Y pursuant to Section 3(f) to be accurate
and true unless such failure would not have occurred but for (I) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, after a Transaction is entered into
(regardless of whether such action is taken or brought with respect to a party to this
Agreement) or (II) a Change in Tax Law.
(ii)
Liability. If:?
(1)
X is required by any applicable law, as modified by the practice of any relevant
governmental revenue authority, to make any deduction or withholding in respect of which X would
not be required to pay an additional amount to Y under Section 2(d)(i)(4);
(2)
(3)
X does not so deduct or withhold; and
a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly
pay to X the amount of such liability (including any related liability for interest, but including any related
liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)
(i), 4(a)(iii) or 4(d)).
3.
Representations
Each party makes the representations contained in Sections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) and, if specified in the
Schedule as applying, 3(g) to the other party (which representations will be deemed to be repeated by each party on
each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until
the termination of this Agreement). If any “Additional Representation” is specified in the Schedule or any Confirmation
as applying, the party or parties specified for such Additional Representation will make and, if applicable, be deemed
to repeat such Additional Representation at the time or times specified for such Additional Representation.
(a)
Basic Representations.
Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation
(i)
or incorporation and, if relevant under such laws, in good standing;
Powers. It has the power to execute this Agreement and any other documentation relating to this
(ii)
Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement
and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary
action to authorise such execution, delivery and performance;
3
ISDA® 2002
No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with
(iii)
any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or
other agency of government applicable to it or any of its assets or any contractual restriction binding on or
affecting it or any of its assets;
Consents. All governmental and other consents that are required to have been obtained by it with
(iv)
respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are
in full force and effect and all conditions of any such consents have been complied with; and
Obligations Binding. Its obligations under this Agreement and any Credit Support Document to
(v)
which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws
affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination
(b)
Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a
party.
Absence of Litigation. There is not pending or, to its knowledge, threatened against it, any of its Credit Support
(c)
Providers or any of its applicable Specified Entities any action, suit or proceeding at law or in equity or before any
court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform
its obligations under this Agreement or such Credit Support Document.
Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of
(d)
it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose
(e)
of this Section 3(e) is accurate and true.
Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose
(f)
of this Section 3(f) is accurate and true.
No Agency. It is entering into this Agreement, including each Transaction, as principal and not as agent of any
(g)
person or entity.
4.
Agreements
Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or
under any Credit Support Document to which it is a party:?
(a)
Furnish Specified Information. It will deliver to the other party or, in certain cases under clause (iii) below,
to such government or taxing authority as the other party reasonably directs:?
(i)
(ii)
any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;
any other documents specified in the Schedule or any Confirmation; and
4
ISDA® 2002
(iii)
upon reasonable demand by such other party, any form or document that may be required or reasonably
requested in writing in order to allow such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any deduction or withholding for or on
account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution
or submission of such form or document would not materially prejudice the legal or commercial position of
the party in receipt of such demand), with any such form or document to be accurate and completed in a manner
reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably
practicable.
Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of
(b)
any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary
in the future.
Comply With Laws. It will comply in all material respects with all applicable laws and orders to which it may
(c)
be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement
or any Credit Support Document to which it is a party.
Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate
(d)
and true promptly upon learning of such failure.
Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect
(e)
of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and
controlled or considered to have its seat, or where an Office through which it is acting for the purpose of this Agreement
is located (“Stamp Tax Jurisdiction”), and will indemnify the other party against any Stamp Tax levied or imposed upon
the other party or in respect of the other party’s execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.
5.
Events of Default and Termination Events
Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support
(a)
Provider of such party or any Specified Entity of such party of any of the following events constitutes (subject to
Sections 5(c) and 6(e)(iv)) an event of default (an “Event of Default”) with respect to such party:?
Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement
(i)
or delivery under Section 2(a)(i) or 9(h)(i)(2) or (4) required to be made by it if such failure is not remedied
on or before the first Local Business Day in the case of any such payment or the first Local Delivery Day in
the case of any such delivery after, in each case, notice of such failure is given to the party;
(ii)
Breach of Agreement; Repudiation of Agreement.
(1)
Failure by the party to comply with or perform any agreement or obligation (other than an
obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 9(h)(i)(2)
or (4) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i),
4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement
if such failure is not remedied within 30 days after notice of such failure is given to the party; or
(2)
validity of, this Master Agreement, any Confirmation executed and delivered by that party or any
the party disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the
5
ISDA® 2002
Transaction evidenced by such a Confirmation (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(iii)
Credit Support Default.
(1)
Failure by the party or any Credit Support Provider of such party to comply with or perform
any agreement or obligation to be complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any applicable grace period has elapsed;
(2)
the expiration or termination of such Credit Support Document or the failing or ceasing of
such Credit Support Document, or any security interest granted by such party or such Credit Support
Provider to the other party pursuant to any such Credit Support Document, to be in full force and
effect for the purpose of this Agreement (in each case other than in accordance with its terms) prior
to the satisfaction of all obligations of such party under each Transaction to which such Credit Support
Document relates without the written consent of the other party; or
(3)
the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in
whole or in part, or challenges the validity of, such Credit Support Document (or such action is taken
by any person or entity appointed or empowered to operate it or act on its behalf);
Misrepresentation. A representation (other than a representation under Section 3(e) or 3(f)) made or
(iv)
repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party
in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material
respect when made or repeated or deemed to have been made or repeated;
Default Under Specified Transaction. The party, any Credit Support Provider of such party or any
(v)
applicable Specified Entity of such party:?
(1)
defaults (other than by failing to make a delivery) under a Specified Transaction or any
credit support arrangement relating to a Specified Transaction and, after giving effect to any applicable
notice requirement or grace period, such default results in a liquidation of, an acceleration of
obligations under, or an early termination of, that Specified Transaction;
(2)
defaults, after giving effect to any applicable notice requirement or grace period, in making
any payment due on the last payment or exchange date of, or any payment on early termination of,
a Specified Transaction (or, if there is no applicable notice requirement or grace period, such default
continues for at least one Local Business Day);
(3)
defaults in making any delivery due under (including any delivery due on the last delivery
or exchange date of) a Specified Transaction or any credit support arrangement relating to a Specified
Transaction and, after giving effect to any applicable notice requirement or grace period, such default
results in a liquidation of, an acceleration of obligations under, or an early termination of, all
transactions outstanding under the documentation applicable to that Specified Transaction; or
disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of,
(4)
a Specified Transaction or any credit support arrangement relating to a Specified Transaction that is,
in either case, confirmed or evidenced by a document or other confirming evidence executed and
delivered by that party, Credit Support Provider or Specified Entity (or such action is taken by any
person or entity appointed or empowered to operate it or act on its behalf);
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Cross-Default. If “Cross-Default” is specified in the Schedule as applying to the party, the occurrence
(vi)
or existence of:?
(1)
a default, event of default or other similar condition or event (however described) in respect
of such party, any Credit Support Provider of such party or any applicable Specified Entity of such
party under one or more agreements or instruments relating to Specified Indebtedness of any of them
(individually or collectively) where the aggregate principal amount of such agreements or instruments,
either alone or together with the amount, if any, referred to in clause (2) below, is not less than the
applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified
Indebtedness becoming, or becoming capable at such time of being declared, due and payable under
such agreements or instruments before it would otherwise have been due and payable; or
(2)
a default by such party, such Credit Support Provider or such Specified Entity (individually
or collectively) in making one or more payments under such agreements or instruments on the due
date for payment (after giving effect to any applicable notice requirement or grace period) in an
aggregate amount, either alone or together with the amount, if any, referred to in clause (1) above,
of not less than the applicable Threshold Amount;
Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity
(vii)
of such party:?
(1)
is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes
insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its
debts as they become due; (3) makes a general assignment, arrangement or composition with or for
the benefit of its creditors; (4)(A) institutes or has instituted against it, by a regulator, supervisor or
any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the
jurisdiction of its incorporation or organisation or the jurisdiction of its head or home office, a
proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy
or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its
winding-up or liquidation by it or such regulator, supervisor or similar official, or (B) has instituted
against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented
for its winding-up or liquidation, and such proceeding or petition is instituted or presented by a person
or entity not described in clause (A) above and either (I) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation
or (II) is not dismissed, discharged, stayed or restrained in each case within 15 days of the institution
or presentation thereof; (5) has a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes
subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee,
custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party
take possession of all or substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or against all or substantially all its
assets and such secured party maintains possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 15 days thereafter; (8) causes or is subject to any event with
respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of
the events specified in clauses (1) to (7) above (inclusive); or (9) takes any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or
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(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates
or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, or reorganises,
reincorporates or reconstitutes into or as, another entity and, at the time of such consolidation, amalgamation,
merger, transfer, reorganisation, reincorporation or reconstitution:?
(1)
the resulting, surviving or transferee entity fails to assume all the obligations of such party
or such Credit Support Provider under this Agreement or any Credit Support Document to which it
or its predecessor was a party; or
(2)
the benefits of any Credit Support Document fail to extend (without the consent of the other
party) to the performance by such resulting, surviving or transferee entity of its obligations under
this Agreement.
Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support
(b)
Provider of such party or any Specified Entity of such party of any event specified below constitutes (subject to Section
5(c)) an Illegality if the event is specified in clause (i) below, a Force Majeure Event if the event is specified in clause
(ii) below, a Tax Event if the event is specified in clause (iii) below, a Tax Event Upon Merger if the event is specified
in clause (iv) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant
to clause (v) below or an Additional Termination Event if the event is specified pursuant to clause (vi) below:?
Illegality. After giving effect to any applicable provision, disruption fallback or remedy specified in,
(i)
or pursuant to, the relevant Confirmation or elsewhere in this Agreement, due to an event or circumstance
(other than any action taken by a party or, if applicable, any Credit Support Provider of such party) occurring
after a Transaction is entered into, it becomes unlawful under any applicable law (including without limitation
the laws of any country in which payment, delivery or compliance is required by either party or any Credit
Support Provider, as the case may be), on any day, or it would be unlawful if the relevant payment, delivery
or compliance were required on that day (in each case, other than as a result of a breach by the party of Section
4(b)):?
(1)
for the Office through which such party (which will be the Affected Party) makes and receives
payments or deliveries with respect to such Transaction to perform any absolute or contingent
obligation to make a payment or delivery in respect of such Transaction, to receive a payment or
delivery in respect of such Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
(2)
for such party or any Credit Support Provider of such party (which will be the Affected
Party) to perform any absolute or contingent obligation to make a payment or delivery which such
party or Credit Support Provider has under any Credit Support Document relating to such Transaction,
to receive a payment or delivery under such Credit Support Document or to comply with any other
material provision of such Credit Support Document;
Force Majeure Event. After giving effect to any applicable provision, disruption fallback or remedy
(ii)
specified in, or pursuant to, the relevant Confirmation or elsewhere in this Agreement, by reason of force
majeure or act of state occurring after a Transaction is entered into, on any day:?
(1)
the Office through which such party (which will be the Affected Party) makes and receives
payments or deliveries with respect to such Transaction is prevented from performing any absolute
or contingent obligation to make a payment or delivery in respect of such Transaction, from receiving
a payment or delivery in respect of such Transaction or from complying with any other material
provision of this Agreement relating to such Transaction (or would be so prevented if such payment,
delivery or compliance were required on that day), or it becomes impossible or
8
ISDA® 2002
impracticable for such Office so to perform, receive or comply (or it would be impossible or
impracticable for such Office so to perform, receive or comply if such payment, delivery or compliance
were required on that day); or
(2)
such party or any Credit Support Provider of such party (which will be the Affected Party)
is prevented from performing any absolute or contingent obligation to make a payment or delivery
which such party or Credit Support Provider has under any Credit Support Document relating to such
Transaction, from receiving a payment or delivery under such Credit Support Document or from
complying with any other material provision of such Credit Support Document (or would be so
prevented if such payment, delivery or compliance were required on that day), or it becomes
impossible or impracticable for such party or Credit Support Provider so to perform, receive or comply
(or it would be impossible or impracticable for such party or Credit Support Provider so to perform,
receive or comply if such payment, delivery or compliance were required on that day),
so long as the force majeure or act of state is beyond the control of such Office, such party or such Credit
Support Provider, as appropriate, and such Office, party or Credit Support Provider could not, after using all
reasonable efforts (which will not require such party or Credit Support Provider to incur a loss, other than
immaterial, incidental expenses), overcome such prevention, impossibility or impracticability;
Tax Event. Due to (1) any action taken by a taxing authority, or brought in a court of competent
(iii)
jurisdiction, after a Transaction is entered into (regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (2) a Change in Tax Law, the party (which will be the Affected Party)
will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Settlement Date (A) be
required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)
(i)(4) (except in respect of interest under Section 9(h)) or (B) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 9
(h)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than
by reason of Section 2(d)(i)(4)(A) or (B));
Tax Event Upon Merger. The party (the “Burdened Party”) on the next succeeding Scheduled
(iv)
Settlement Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax
under Section 2(d)(i)(4) (except in respect of interest under Section 9(h)) or (2) receive a payment from which
an amount has been deducted or withheld for or on account of any Tax in respect of which the other party is
not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case
as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or
substantially all its assets (or any substantial part of the assets comprising the business conducted by it as of
the date of this Master Agreement) to, or reorganising, reincorporating or reconstituting into or as, another
entity (which will be the Affected Party) where such action does not constitute a Merger Without Assumption;
Credit Event Upon Merger. If “Credit Event Upon Merger” is specified in the Schedule as applying
(v)
to the party, a Designated Event (as defined below) occurs with respect to such party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (in each case, “X”) and such Designated
Event does not constitute a Merger Without Assumption, and the creditworthiness of X or, if applicable, the
successor, surviving or transferee entity of X, after taking into account any applicable Credit Support Document,
is materially weaker immediately after the occurrence of such Designated Event than that of X immediately
prior to the occurrence of such Designated Event (and, in any such event, such party or its successor, surviving
or transferee entity, as appropriate, will be the Affected Party). A “Designated Event” with respect to X means
that:?
(1)
X consolidates or amalgamates with, or merges with or into, or transfers all or substantially
all its assets (or any substantial part of the assets comprising the business conducted by X as of the
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date of this Master Agreement) to, or reorganises, reincorporates or reconstitutes into or as, another
entity;
(2)
any person, related group of persons or entity acquires directly or indirectly the beneficial
ownership of (A) equity securities having the power to elect a majority of the board of directors (or
its equivalent) of X or (B) any other ownership interest enabling it to exercise control of X; or
(3)
X effects any substantial change in its capital structure by means of the issuance, incurrence
or guarantee of debt or the issuance of (A) preferred stock or other securities convertible into or
exchangeable for debt or preferred stock or (B) in the case of entities other than corporations, any
other form of ownership interest; or
Additional Termination Event. If any “Additional Termination Event” is specified in the Schedule
(vi)
or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or
Affected Parties will be as specified for such Additional Termination Event in the Schedule or such
Confirmation).
(c)
Hierarchy of Events.
An event or circumstance that constitutes or gives rise to an Illegality or a Force Majeure Event will
(i)
not, for so long as that is the case, also constitute or give rise to an Event of Default under Section 5(a)(i), 5
(a)(ii)(1) or 5(a)(iii)(1) insofar as such event or circumstance relates to the failure to make any payment or
delivery or a failure to comply with any other material provision of this Agreement or a Credit Support
Document, as the case may be.
(ii)
Except in circumstances contemplated by clause (i) above, if an event or circumstance which would
otherwise constitute or give rise to an Illegality or a Force Majeure Event also constitutes an Event of Default
or any other Termination Event, it will be treated as an Event of Default or such other Termination Event, as
the case may be, and will not constitute or give rise to an Illegality or a Force Majeure Event.
(iii)
If an event or circumstance which would otherwise constitute or give rise to a Force Majeure Event
also constitutes an Illegality, it will be treated as an Illegality, except as described in clause (ii) above, and not
a Force Majeure Event.
Deferral of Payments and Deliveries During Waiting Period. If an Illegality or a Force Majeure Event has
(d)
occurred and is continuing with respect to a Transaction, each payment or delivery which would otherwise be required
to be made under that Transaction will be deferred to, and will not be due until:?
(i)
the first Local Business Day or, in the case of a delivery, the first Local Delivery Day (or the first
day that would have been a Local Business Day or Local Delivery Day, as appropriate, but for the occurrence
of the event or circumstance constituting or giving rise to that Illegality or Force Majeure Event) following
the end of any applicable Waiting Period in respect of that Illegality or Force Majeure Event, as the case may
be; or
if earlier, the date on which the event or circumstance constituting or giving rise to that Illegality or
(ii)
Force Majeure Event ceases to exist or, if such date is not a Local Business Day or, in the case of a delivery,
a Local Delivery Day, the first following day that is a Local Business Day or Local Delivery Day, as appropriate.
Inability of Head or Home Office to Perform Obligations of Branch. If (i) an Illegality or a Force Majeure
(e)
Event occurs under Section 5(b)(i)(1) or 5(b)(ii)(1) and the relevant Office is not the Affected Party’s head or home
office, (ii) Section 10(a) applies, (iii) the other party seeks performance of the relevant obligation or
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compliance with the relevant provision by the Affected Party’s head or home office and (iv) the Affected Party’s head
or home office fails so to perform or comply due to the occurrence of an event or circumstance which would, if that
head or home office were the Office through which the Affected Party makes and receives payments and deliveries
with respect to the relevant Transaction, constitute or give rise to an Illegality or a Force Majeure Event, and such
failure would otherwise constitute an Event of Default under Section 5(a)(i)or 5(a)(iii)(1) with respect to such party,
then, for so long as the relevant event or circumstance continues to exist with respect to both the Office referred to in
Section 5(b)(i)(1) or 5(b)(ii)(1), as the case may be, and the Affected Party’s head or home office, such failure will not
constitute an Event of Default under Section 5(a)(i) or 5(a)(iii)(1).
6.
Early Termination; Close-Out Netting
Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party
(a)
(the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not
more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier
than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however,
“Automatic Early Termination” is specified in the Schedule as applying to a party, then an Early Termination Date in
respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time
immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the
occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous
thereto, (8).
(b)
Right to Terminate Following Termination Event.
Notice. If a Termination Event other than a Force Majeure Event occurs, an Affected Party will,
(i)
promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event
and each Affected Transaction, and will also give the other party such other information about that Termination
Event as the other party may reasonably require. If a Force Majeure Event occurs, each party will, promptly
upon becoming aware of it, use all reasonable efforts to notify the other party, specifying the nature of that
Force Majeure Event, and will also give the other party such other information about that Force Majeure Event
as the other party may reasonably require.
Transfer to Avoid Termination Event. If a Tax Event occurs and there is only one Affected Party, or
(ii)
if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as
a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts
(which will not require such party to incur a loss, other than immaterial, incidental expenses) to transfer within
20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect
of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to
exist.
If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within
such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is
given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written
consent of the other party, which consent will not be withheld if such other party’s policies in effect at such
time would permit it to enter into transactions with the transferee on the terms proposed.
Two Affected Parties. If a Tax Event occurs and there are two Affected Parties, each party will use
(iii)
all reasonable efforts to reach agreement within 30 days after notice of such occurrence is given under Section
6(b)(i) to avoid that Termination Event.
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(iv)
Right to Terminate.
(1)
If:?
(A)
a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case
may be, has not been effected with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(B)
Event Upon Merger occurs and the Burdened Party is not the Affected Party,
a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax
the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax
Event or an Additional Termination Event if there are two Affected Parties, or the Non-affected Party
in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, if the relevant Termination Event is then continuing, by not more than 20 days
notice to the other party, designate a day not earlier than the day such notice is effective as an Early
Termination Date in respect of all Affected Transactions.
(2)
and any applicable Waiting Period has expired:?
If at any time an Illegality or a Force Majeure Event has occurred and is then continuing
(A)
Subject to clause (B) below, either party may, by not more than 20 days notice to
the other party, designate (I) a day not earlier than the day on which such notice becomes
effective as an Early Termination Date in respect of all Affected Transactions or (II) by
specifying in that notice the Affected Transactions in respect of which it is designating the
relevant day as an Early Termination Date, a day not earlier than two Local Business Days
following the day on which such notice becomes effective as an Early Termination Date in
respect of less than all Affected Transactions. Upon receipt of a notice designating an Early
Termination Date in respect of less than all Affected Transactions, the other party may, by
notice to the designating party, if such notice is effective on or before the day so designated,
designate that same day as an Early Termination Date in respect of any or all other Affected
Transactions.
(B)
An Affected Party (if the Illegality or Force Majeure Event relates to performance
by such party or any Credit Support Provider of such party of an obligation to make any
payment or delivery under, or to compliance with any other material provision of, the relevant
Credit Support Document) will only have the right to designate an Early Termination Date
under Section 6(b)(iv)(2)(A) as a result of an Illegality under Section 5(b)(i)(2) or a Force
Majeure Event under Section 5(b)(ii)(2) following the prior designation by the other party
of an Early Termination Date, pursuant to Section 6(b)(iv)(2)(A), in respect of less than all
Affected Transactions.
(c)
Effect of Designation.
If notice designating an Early Termination Date is given under Section 6(a) or 6(b), the Early
(i)
Termination Date will occur on the date so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii)
Upon the occurrence or effective designation of an Early Termination Date, no further payments or
deliveries under Section 2(a)(i) or 9(h)(i) in respect of the Terminated Transactions will be required to be
made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect
of an Early Termination Date will be determined pursuant to Sections 6(e) and 9(h)(ii).
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(d)
Calculations; Payment Date.
Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination
(i)
Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide
to the other party a statement (1) showing, in reasonable detail, such calculations (including any quotations,
market data or information from internal sources used in making such calculations), (2) specifying (except
where there are two Affected Parties) any Early Termination Amount payable and (3) giving details of the
relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from
the source of a quotation or market data obtained in determining a Close-out Amount, the records of the party
obtaining such quotation or market data will be conclusive evidence of the existence and accuracy of such
quotation or market data.
Payment Date. An Early Termination Amount due in respect of any Early Termination Date will,
(ii)
together with any amount of interest payable pursuant to Section 9(h)(ii)(2), be payable (1) on the day on
which notice of the amount payable is effective in the case of an Early Termination Date which is designated
or occurs as a result of an Event of Default and (2) on the day which is two Local Business Days after the day
on which notice of the amount payable is effective (or, if there are two Affected Parties, after the day on which
the statement provided pursuant to clause (i) above by the second party to provide such a statement is effective)
in the case of an Early Termination Date which is designated as a result of a Termination Event.
Payments on Early Termination. If an Early Termination Date occurs, the amount, if any, payable in respect
(e)
of that Early Termination Date (the “Early Termination Amount”) will be determined pursuant to this Section 6(e) and
will be subject to Section 6(f).
Events of Default. If the Early Termination Date results from an Event of Default, the Early
(i)
Termination Amount will be an amount equal to (1) the sum of (A) the Termination Currency Equivalent of
the Close-out Amount or Close-out Amounts (whether positive or negative) determined by the Non-defaulting
Party for each Terminated Transaction or group of Terminated Transactions, as the case may be, and (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (2) the
Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If the Early
Termination Amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is
a negative number, the Non-defaulting Party will pay the absolute value of the Early Termination Amount to
the Defaulting Party.
(ii)
Termination Events. If the Early Termination Date results from a Termination Event:?
One Affected Party. Subject to clause (3) below, if there is one Affected Party, the Early
(1)
Termination Amount will be determined in accordance with Section 6(e)(i), except that references
to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected
Party and to the Non-affected Party, respectively.
Two Affected Parties. Subject to clause (3) below, if there are two Affected Parties, each
(2)
party will determine an amount equal to the Termination Currency Equivalent of the sum of the Close-
out Amount or Close-out Amounts (whether positive or negative) for each Terminated Transaction
or group of Terminated Transactions, as the case may be, and the Early Termination Amount will be
an amount equal to (A) the sum of (I) one-half of the difference between the higher amount so
determined (by party “X”) and the lower amount so determined (by party “Y”) and (II) the Termination
Currency Equivalent of the Unpaid Amounts owing to X less (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to Y. If the Early Termination Amount is a positive number, Y will
pay it to X; if it is a negative number, X will pay the absolute value of the Early Termination Amount
to Y.
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Mid-Market Events. If that Termination Event is an Illegality or a Force Majeure Event, then
(3)
the Early Termination Amount will be determined in accordance with clause (1) or (2) above, as
appropriate, except that, for the purpose of determining a Close-out Amount or Close-out Amounts,
the Determining Party will:?
(A)
if obtaining quotations from one or more third parties (or from any of the
Determining Party’s Affiliates), ask each third party or Affiliate (I) not to take account of
the current creditworthiness of the Determining Party or any existing Credit Support
Document and (II) to provide mid-market quotations; and
(B)
the Determining Party.
in any other case, use mid-market values without regard to the creditworthiness of
Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs
(iii)
because Automatic Early Termination applies in respect of a party, the Early Termination Amount
will be subject to such adjustments as are appropriate and permitted by applicable law to reflect any
payments or deliveries made by one party to the other under this Agreement (and retained by such
other party) during the period from the relevant Early Termination Date to the date for payment
determined under Section 6(d)(ii).
Adjustment for Illegality or Force Majeure Event. The failure by a party or any Credit
(iv)
Support Provider of such party to pay, when due, any Early Termination Amount will not constitute
an Event of Default under Section 5(a)(i) or 5(a)(iii)(1) if such failure is due to the occurrence of an
event or circumstance which would, if it occurred with respect to payment, delivery or compliance
related to a Transaction, constitute or give rise to an Illegality or a Force Majeure Event. Such amount
will (1) accrue interest and otherwise be treated as an Unpaid Amount owing to the other party if
subsequently an Early Termination Date results from an Event of Default, a Credit Event Upon Merger
or an Additional Termination Event in respect of which all outstanding Transactions are Affected
Transactions and (2) otherwise accrue interest in accordance with Section 9(h)(ii)(2).
Pre-Estimate. The parties agree that an amount recoverable under this Section 6(e) is a
(v)
reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks, and, except as otherwise provided in this Agreement, neither
party will be entitled to recover any additional damages as a consequence of the termination of the
Terminated Transactions.
Set-Off. Any Early Termination Amount payable to one party (the “Payee”) by the other party (the “Payer”),
(f)
in circumstances where there is a Defaulting Party or where there is one Affected Party in the case where either a Credit
Event Upon Merger has occurred or any other Termination Event in respect of which all outstanding Transactions are
Affected Transactions has occurred, will, at the option of the Non-defaulting Party or the Non-affected Party, as the
case may be (“X”) (and without prior notice to the Defaulting Party or the Affected Party, as the case may be), be
reduced by its set-off against any other amounts (“Other Amounts”) payable by the Payee to the Payer (whether or not
arising under this Agreement, matured or contingent and irrespective of the currency, place of payment or place of
booking of the obligation). To the extent that any Other Amounts are so set off, those Other Amounts will be discharged
promptly and in all respects. X will give notice to the other party of any set-off effected under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other Amounts (or the relevant portion of such amounts)
may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party
would be able, in good faith and using commercially reasonable procedures, to purchase the relevant amount of such
currency.
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If an obligation is unascertained, X may in good faith estimate that obligation and set off in respect of the estimate,
subject to the relevant party accounting to the other when the obligation is ascertained.
Nothing in this Section 6(f) will be effective to create a charge or other security interest. This Section 6(f) will be
without prejudice and in addition to any right of set-off, offset, combination of accounts, lien, right of retention or
withholding or similar right or requirement to which any party is at any time otherwise entitled or subject (whether by
operation of law, contract or otherwise).
7.
Transfer
Subject to Section 6(b)(ii) and to the extent permitted by applicable law, neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party, except that:?
(a)
a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or
merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other
right or remedy under this Agreement); and
(b)
a party may make such a transfer of all or any part of its interest in any Early Termination Amount payable to
it by a Defaulting Party, together with any amounts payable on or with respect to that interest and any other rights
associated with that interest pursuant to Sections 8, 9(h) and 11.
Any purported transfer that is not in compliance with this Section 7 will be void.
8.
Contractual Currency
Payment in the Contractual Currency. Each payment under this Agreement will be made in the relevant
(a)
currency specified in this Agreement for that payment (the “Contractual Currency”). To the extent permitted by
applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged
or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results
in the actual receipt by the party to which payment is owed, acting in good faith and using commercially reasonable
procedures in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual
Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency
so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required
to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the
Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual
Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party
receiving the payment will refund promptly the amount of such excess.
Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other
(b)
than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii)
for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a
judgment or order of another court for the payment of any amount described in clause (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or
order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency
received by such party as a consequence of sums paid in such other currency and will refund promptly to the other
party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other
currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the
Contractual Currency is converted into the currency of the judgment or order for the purpose of such judgment or order
and the rate of exchange at which such party is able, acting in good faith and using
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commercially reasonable procedures in converting the currency received into the Contractual Currency, to purchase
the Contractual Currency with the amount of the currency of the judgment or order actually received by such party.
Separate Indemnities. To the extent permitted by applicable law, the indemnities in this Section 8 constitute
(c)
separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and
independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment
is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable
in respect of this Agreement.
Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would
(d)
have suffered a loss had an actual exchange or purchase been made.
9.
Miscellaneous
Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with
(a)
respect to its subject matter. Each of the parties acknowledges that in entering into this Agreement it has not relied on
any oral or written representation, warranty or other assurance (except as provided for or referred to in this Agreement)
and waives all rights and remedies which might otherwise be available to it in respect thereof, except that nothing in
this Agreement will limit or exclude any liability of a party for fraud.
Amendments. An amendment, modification or waiver in respect of this Agreement will only be effective if
(b)
in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed
by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system.
Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under
(c)
this Agreement will survive the termination of any Transaction.
Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges
(d)
provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided
by law.
(e)
Counterparts and Confirmations.
(i)
This Agreement (and each amendment, modification and waiver in respect of it) may be executed
and delivered in counterparts (including by facsimile transmission and by electronic messaging system), each
of which will be deemed an original.
(ii)
The parties intend that they are legally bound by the terms of each Transaction from the moment they
agree to those terms (whether orally or otherwise). A Confirmation will be entered into as soon as practicable
and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an
exchange of telexes, by an exchange of electronic messages on an electronic messaging system or by an
exchange of e-mails, which in each case will be sufficient for all purposes to evidence a binding supplement
to this Agreement. The parties will specify therein or through another effective means that any such counterpart,
telex, electronic message or e-mail constitutes a Confirmation.
No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement
(f)
will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be
presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other
right, power or privilege.
Headings. The headings used in this Agreement are for convenience of reference only and are not to affect
(g)
the construction of or to be taken into consideration in interpreting this Agreement.
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(h)
Interest and Compensation.
(i)
Date in respect of the relevant Transaction:?
Prior to Early Termination. Prior to the occurrence or effective designation of an Early Termination
Interest on Defaulted Payments. If a party defaults in the performance of any payment
(1)
obligation, it will, to the extent permitted by applicable law and subject to Section 6(c), pay interest
(before as well as after judgment) on the overdue amount to the other party on demand in the same
currency as the overdue amount, for the period from (and including) the original due date for payment
to (but excluding) the date of actual payment (and excluding any period in respect of which interest
or compensation in respect of the overdue amount is due pursuant to clause (3)(B) or (C) below), at
the Default Rate.
Compensation for Defaulted Deliveries. If a party defaults in the performance of any
(2)
obligation required to be settled by delivery, it will on demand (A) compensate the other party to the
extent provided for in the relevant Confirmation or elsewhere in this Agreement and (B) unless
otherwise provided in the relevant Confirmation or elsewhere in this Agreement, to the extent
permitted by applicable law and subject to Section 6(c), pay to the other party interest (before as well
as after judgment) on an amount equal to the fair market value of that which was required to be
delivered in the same currency as that amount, for the period from (and including) the originally
scheduled date for delivery to (but excluding) the date of actual delivery (and excluding any period
in respect of which interest or compensation in respect of that amount is due pursuant to clause (4)
below), at the Default Rate. The fair market value of any obligation referred to above will be
determined as of the originally scheduled date for delivery, in good faith and using commercially
reasonable procedures, by the party that was entitled to take delivery.
(3)
Interest on Deferred Payments. If:?
(A)
a party does not pay any amount that, but for Section 2(a)(iii), would have been
payable, it will, to the extent permitted by applicable law and subject to Section 6(c) and
clauses (B) and (C) below, pay interest (before as well as after judgment) on that amount to
the other party on demand (after such amount becomes payable) in the same currency as
that amount, for the period from (and including) the date the amount would, but for Section
2(a)(iii), have been payable to (but excluding) the date the amount actually becomes payable,
at the Applicable Deferral Rate;
a payment is deferred pursuant to Section 5(d), the party which would otherwise
(B)
have been required to make that payment will, to the extent permitted by applicable law,
subject to Section 6(c) and for so long as no Event of Default or Potential Event of Default
with respect to that party has occurred and is continuing, pay interest (before as well as after
judgment) on the amount of the deferred payment to the other party on demand (after such
amount becomes payable) in the same currency as the deferred payment, for the period from
(and including) the date the amount would, but for Section 5(d), have been payable to (but
excluding) the earlier of the date the payment is no longer deferred pursuant to Section 5
(d) and the date during the deferral period upon which an Event of Default or Potential Event
of Default with respect to that party occurs, at the Applicable Deferral Rate; or
(C)
a party fails to make any payment due to the occurrence of an Illegality or a Force
Majeure Event (after giving effect to any deferral period contemplated by clause (B) above),
it will, to the extent permitted by applicable law, subject to Section 6(c) and for so long as
the event or circumstance giving rise to that Illegality or Force Majeure Event
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continues and no Event of Default or Potential Event of Default with respect to that party
has occurred and is continuing, pay interest (before as well as after judgment) on the overdue
amount to the other party on demand in the same currency as the overdue amount, for the
period from (and including) the date the party fails to make the payment due to the occurrence
of the relevant Illegality or Force Majeure Event (or, if later, the date the payment is no
longer deferred pursuant to Section 5(d)) to (but excluding) the earlier of the date the event
or circumstance giving rise to that Illegality or Force Majeure Event ceases to exist and the
date during the period upon which an Event of Default or Potential Event of Default with
respect to that party occurs (and excluding any period in respect of which interest or
compensation in respect of the overdue amount is due pursuant to clause (B) above), at the
Applicable Deferral Rate.
(4)
Compensation for Deferred Deliveries. If:?
(A)
been required to be settled by delivery;
a party does not perform any obligation that, but for Section 2(a)(iii), would have
(B)
a delivery is deferred pursuant to Section 5(d); or
(C)
Majeure Event at a time when any applicable Waiting Period has expired,
a party fails to make a delivery due to the occurrence of an Illegality or a Force
the party required (or that would otherwise have been required) to make the delivery will, to the
extent permitted by applicable law and subject to Section 6(c), compensate and pay interest to the
other party on demand (after, in the case of clauses (A) and (B) above, such delivery is required) if
and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.
Early Termination. Upon the occurrence or effective designation of an Early Termination Date in
(ii)
respect of a Transaction:?
Unpaid Amounts. For the purpose of determining an Unpaid Amount in respect of the relevant
(1)
Transaction, and to the extent permitted by applicable law, interest will accrue on the amount of any
payment obligation or the amount equal to the fair market value of any obligation required to be
settled by delivery included in such determination in the same currency as that amount, for the period
from (and including) the date the relevant obligation was (or would have been but for Section 2(a)
(iii) or 5(d)) required to have been performed to (but excluding) the relevant Early Termination Date,
at the Applicable Close-out Rate.
Interest on Early Termination Amounts. If an Early Termination Amount is due in respect
(2)
of such Early Termination Date, that amount will, to the extent permitted by applicable law, be paid
together with interest (before as well as after judgment) on that amount in the Termination Currency,
for the period from (and including) such Early Termination Date to (but excluding) the date the
amount is paid, at the Applicable Close-out Rate.
Interest Calculation. Any interest pursuant to this Section 9(h) will be calculated on the basis of
(iii)
daily compounding and the actual number of days elapsed.
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10.
Offices; Multibranch Parties
If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an
(a)
Office other than its head or home office represents to and agrees with the other party that, notwithstanding the place
of booking or its jurisdiction of incorporation or organisation, its obligations are the same in terms of recourse against
it as if it had entered into the Transaction through its head or home office, except that a party will not have recourse to
the head or home office of the other party in respect of any payment or delivery deferred pursuant to Section 5(d) for
so long as the payment or delivery is so deferred. This representation and agreement will be deemed to be repeated by
each party on each date on which the parties enter into a Transaction.
If a party is specified as a Multibranch Party in the Schedule, such party may, subject to clause (c) below, enter
(b)
into a Transaction through, book a Transaction in and make and receive payments and deliveries with respect to a
Transaction through any Office listed in respect of that party in the Schedule (but not any other Office unless otherwise
agreed by the parties in writing).
(c)
The Office through which a party enters into a Transaction will be the Office specified for that party in the
relevant Confirmation or as otherwise agreed by the parties in writing, and, if an Office for that party is not specified
in the Confirmation or otherwise agreed by the parties in writing, its head or home office. Unless the parties otherwise
agree in writing, the Office through which a party enters into a Transaction will also be the Office in which it books
the Transaction and the Office through which it makes and receives payments and deliveries with respect to the
Transaction. Subject to Section 6(b)(ii), neither party may change the Office in which it books the Transaction or the
Office through which it makes and receives payments or deliveries with respect to a Transaction without the prior
written consent of the other party.
11.
Expenses
A Defaulting Party will on demand indemnify and hold harmless the other party for and against all reasonable out-of-
pocket expenses, including legal fees, execution fees and Stamp Tax, incurred by such other party by reason of the
enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting
Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.
12.
Notices
Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner
(a)
described below (except that a notice or other communication under Section 5 or 6 may not be given by electronic
messaging system or e-mail) to the address or number or in accordance with the electronic messaging system or e-mail
details provided (see the Schedule) and will be deemed effective as indicated:?
(i)
if in writing and delivered in person or by courier, on the date it is delivered;
(ii)
if sent by telex, on the date the recipient’s answerback is received;
(iii)
if sent by facsimile transmission, on the date it is received by a responsible employee of the recipient
in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met
by a transmission report generated by the sender’s facsimile machine);
(iv)
on the date it is delivered or its delivery is attempted;
if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested),
(v)
if sent by electronic messaging system, on the date it is received; or
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(vi)
if sent by e-mail, on the date it is delivered,
unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that
communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business
Day, in which case that communication will be deemed given and effective on the first following day that is a Local
Business Day.
Change of Details. Either party may by notice to the other change the address, telex or facsimile number or
(b)
electronic messaging system or e-mail details at which notices or other communications are to be given to it.
13.
Governing Law and Jurisdiction
Governing Law. This Agreement will be governed by and construed in accordance with the law specified in
(a)
the Schedule.
Jurisdiction. With respect to any suit, action or proceedings relating to any dispute arising out of or in
(b)
connection with this Agreement (“Proceedings”), each party irrevocably:?
(i)
submits:?
(1)
if this Agreement is expressed to be governed by English law, to (A) the non-exclusive
jurisdiction of the English courts if the Proceedings do not involve a Convention Court and (B) the
exclusive jurisdiction of the English courts if the Proceedings do involve a Convention Court; or
(2)
if this Agreement is expressed to be governed by the laws of the State of New York, to the
non-exclusive jurisdiction of the courts of the State of New York and the United States District Court
located in the Borough of Manhattan in New York City;
(ii)
waives any objection which it may have at any time to the laying of venue of any Proceedings brought
in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction
over such party; and
(iii)
jurisdictions will not preclude the bringing of Proceedings in any other jurisdiction.
agrees, to the extent permitted by applicable law, that the bringing of Proceedings in any one or more
Service of Process. Each party irrevocably appoints the Process Agent, if any, specified opposite its name in
(c)
the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party’s
Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a
substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the
manner provided for notices in Section 12(a)(i), 12(a)(iii) or 12(a)(iv). Nothing in this Agreement will affect the right
of either party to serve process in any other manner permitted by applicable law.
Waiver of Immunities. Each party irrevocably waives, to the extent permitted by applicable law, with respect
(d)
to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty
or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction or order for specific
performance or recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution
or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in
the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim
any such immunity in any Proceedings.
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14.
Definitions
As used in this Agreement:?
“Additional Representation” has the meaning specified in Section 3.
“Additional Termination Event” has the meaning specified in Section 5(b).
“Affected Party” has the meaning specified in Section 5(b).
“Affected Transactions” means (a) with respect to any Termination Event consisting of an Illegality, Force Majeure
Event, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event
(which, in the case of an Illegality under Section 5(b)(i)(2) or a Force Majeure Event under Section 5(b)(ii)(2), means
all Transactions unless the relevant Credit Support Document references only certain Transactions, in which case those
Transactions and, if the relevant Credit Support Document constitutes a Confirmation for a Transaction, that Transaction)
and (b) with respect to any other Termination Event, all Transactions.
“Affiliate” means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the
person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common
control with the person. For this purpose, “control” of any entity or person means ownership of a majority of the voting
power of the entity or person.
“Agreement” has the meaning specified in Section 1(c).
“Applicable Close-out Rate” means:?
(a)
in respect of the determination of an Unpaid Amount:?
(i)
by a Defaulting Party, the Default Rate;
in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
(ii)
by a Non-defaulting Party, the Non-default Rate;
in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
(iii)
long as the deferral period continues, the Applicable Deferral Rate; and
in respect of obligations deferred pursuant to Section 5(d), if there is no Defaulting Party and for so
(iv)
pursuant to clause (iii) above), the Applicable Deferral Rate; and
in all other cases following the occurrence of a Termination Event (except where interest accrues
(b)
in respect of an Early Termination Amount:?
(i)
(determined in accordance with Section 6(d)(ii)) on which that amount is payable:?
for the period from (and including) the relevant Early Termination Date to (but excluding) the date
(1)
(2)
and
(3)
if the Early Termination Amount is payable by a Defaulting Party, the Default Rate;
if the Early Termination Amount is payable by a Non-defaulting Party, the Non-default Rate;
in all other cases, the Applicable Deferral Rate; and
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(ii)
that amount is payable to (but excluding) the date of actual payment:?
for the period from (and including) the date (determined in accordance with Section 6(d)(ii)) on which
(1)
if a party fails to pay the Early Termination Amount due to the occurrence of an event or
circumstance which would, if it occurred with respect to a payment or delivery under a Transaction,
constitute or give rise to an Illegality or a Force Majeure Event, and for so long as the Early Termination
Amount remains unpaid due to the continuing existence of such event or circumstance, the Applicable
Deferral Rate;
(2)
in respect of which clause (1) above applies), the Default Rate;
if the Early Termination Amount is payable by a Defaulting Party (but excluding any period
(3)
period in respect of which clause (1) above applies), the Non-default Rate; and
if the Early Termination Amount is payable by a Non-defaulting Party (but excluding any
(4)
in all other cases, the Termination Rate.
“Applicable Deferral Rate” means:?
for the purpose of Section 9(h)(i)(3)(A), the rate certified by the relevant payer to be a rate offered to the payer
(a)
by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be selected
in good faith by the payer for the purpose of obtaining a representative rate that will reasonably reflect conditions
prevailing at the time in that relevant market;
(b)
for purposes of Section 9(h)(i)(3)(B) and clause (a)(iii) of the definition of Applicable Close-out Rate, the rate
certified by the relevant payer to be a rate offered to prime banks by a major bank in a relevant interbank market for
overnight deposits in the applicable currency, such bank to be selected in good faith by the payer after consultation
with the other party, if practicable, for the purpose of obtaining a representative rate that will reasonably reflect conditions
prevailing at the time in that relevant market; and
(c)
for purposes of Section 9(h)(i)(3)(C) and clauses (a)(iv), (b)(i)(3) and (b)(ii)(1) of the definition of Applicable
Close-out Rate, a rate equal to the arithmetic mean of the rate determined pursuant to clause (a) above and a rate per
annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were
to fund or of funding the relevant amount.
“Automatic Early Termination” has the meaning specified in Section 6(a).
“Burdened Party” has the meaning specified in Section 5(b)(iv).
“Change in Tax Law” means the enactment, promulgation, execution or ratification of, or any change in or amendment
to, any law (or in the application or official interpretation of any law) that occurs after the parties enter into the relevant
Transaction.
“Close-out Amount” means, with respect to each Terminated Transaction or each group of Terminated Transactions
and a Determining Party, the amount of the losses or costs of the Determining Party that are or would be incurred under
then prevailing circumstances (expressed as a positive number) or gains of the Determining Party that are or would be
realised under then prevailing circumstances (expressed as a negative number) in replacing, or in providing for the
Determining Party the economic equivalent of, (a) the material terms of that Terminated Transaction or group of
Terminated Transactions, including the payments and deliveries by the parties under Section 2(a)(i) in respect of that
Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early
Termination Date, have been required after that date (assuming satisfaction of the conditions precedent in
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Section 2(a)(iii)) and (b) the option rights of the parties in respect of that Terminated Transaction or group of Terminated
Transactions.
Any Close-out Amount will be determined by the Determining Party (or its agent), which will act in good faith and
use commercially reasonable procedures in order to produce a commercially reasonable result. The Determining Party
may determine a Close-out Amount for any group of Terminated Transactions or any individual Terminated Transaction
but, in the aggregate, for not less than all Terminated Transactions. Each Close-out Amount will be determined as of
the Early Termination Date or, if that would not be commercially reasonable, as of the date or dates following the Early
Termination Date as would be commercially reasonable.
Unpaid Amounts in respect of a Terminated Transaction or group of Terminated Transactions and legal fees and out-
of-pocket expenses referred to in Section 11 are to be excluded in all determinations of Close-out Amounts.
In determining a Close-out Amount, the Determining Party may consider any relevant information, including, without
limitation, one or more of the following types of information: ?
(i)
quotations (either firm or indicative) for replacement transactions supplied by one or more third parties that
may take into account the creditworthiness of the Determining Party at the time the quotation is provided and the terms
of any relevant documentation, including credit support documentation, between the Determining Party and the third
party providing the quotation;
(ii)
information consisting of relevant market data in the relevant market supplied by one or more third parties
including, without limitation, relevant rates, prices, yields, yield curves, volatilities, spreads, correlations or other
relevant market data in the relevant market; or
(iii)
information of the types described in clause (i) or (ii) above from internal sources (including any of the
Determining Party’s Affiliates) if that information is of the same type used by the Determining Party in the regular
course of its business for the valuation of similar transactions.
The Determining Party will consider, taking into account the standards and procedures described in this definition,
quotations pursuant to clause (i) above or relevant market data pursuant to clause (ii) above unless the Determining
Party reasonably believes in good faith that such quotations or relevant market data are not readily available or would
produce a result that would not satisfy those standards. When considering information described in clause (i), (ii) or
(iii) above, the Determining Party may include costs of funding, to the extent costs of funding are not and would not
be a component of the other information being utilised. Third parties supplying quotations pursuant to clause (i) above
or market data pursuant to clause (ii) above may include, without limitation, dealers in the relevant markets, end-users
of the relevant product, information vendors, brokers and other sources of market information.
Without duplication of amounts calculated based on information described in clause (i), (ii) or (iii) above, or other
relevant information, and when it is commercially reasonable to do so, the Determining Party may in addition consider
in calculating a Close-out Amount any loss or cost incurred in connection with its terminating, liquidating or re-
establishing any hedge related to a Terminated Transaction or group of Terminated Transactions (or any gain resulting
from any of them).
Commercially reasonable procedures used in determining a Close-out Amount may include the following:?
(1)
application to relevant market data from third parties pursuant to clause (ii) above or information from internal
sources pursuant to clause (iii) above of pricing or other valuation models that are, at the time of the determination of
the Close-out Amount, used by the Determining Party in the regular course of its business in pricing or valuing
transactions between the Determining Party and unrelated third parties that are similar to the Terminated Transaction
or group of Terminated Transactions; and
23
ISDA® 2002
(2)
application of different valuation methods to Terminated Transactions or groups of Terminated Transactions
depending on the type, complexity, size or number of the Terminated Transactions or group of Terminated Transactions.
“Confirmation” has the meaning specified in the preamble.
“consent” includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control
consent.
“Contractual Currency” has the meaning specified in Section 8(a).
“Convention Court” means any court which is bound to apply to the Proceedings either Article 17 of the 1968 Brussels
Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters or Article 17 of the
1988 Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.
“Credit Event Upon Merger” has the meaning specified in Section 5(b).
“Credit Support Document” means any agreement or instrument that is specified as such in this Agreement.
“Credit Support Provider” has the meaning specified in the Schedule.
“Cross-Default” means the event specified in Section 5(a)(vi).
“Default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant
payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum.
“Defaulting Party” has the meaning specified in Section 6(a).
“Designated Event” has the meaning specified in Section 5(b)(v).
“Determining Party” means the party determining a Close-out Amount.
“Early Termination Amount” has the meaning specified in Section 6(e).
“Early Termination Date” means the date determined in accordance with Section 6(a) or 6(b)(iv).
“electronic messages” does not include e-mails but does include documents expressed in markup languages, and
“electronic messaging system” will be construed accordingly.
“English law” means the law of England and Wales, and “English” will be construed accordingly.
“Event of Default” has the meaning specified in Section 5(a) and, if applicable, in the Schedule.
“Force Majeure Event” has the meaning specified in Section 5(b).
“General Business Day” means a day on which commercial banks are open for general business (including dealings
in foreign exchange and foreign currency deposits).
“Illegality” has the meaning specified in Section 5(b).
24
ISDA® 2002
“Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this
Agreement but for a present or former connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation,
a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having
had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely
from such recipient or related person having executed, delivered, performed its obligations or received a payment under,
or enforced, this Agreement or a Credit Support Document).
“law” includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant
governmental revenue authority), and “unlawful” will be construed accordingly.
“Local Business Day” means (a) in relation to any obligation under Section 2(a)(i), a General Business Day in the
place or places specified in the relevant Confirmation and a day on which a relevant settlement system is open or
operating as specified in the relevant Confirmation or, if a place or a settlement system is not so specified, as otherwise
agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this
Agreement, (b) for the purpose of determining when a Waiting Period expires, a General Business Day in the place
where the event or circumstance that constitutes or gives rise to the Illegality or Force Majeure Event, as the case may
be, occurs, (c) in relation to any other payment, a General Business Day in the place where the relevant account is
located and, if different, in the principal financial centre, if any, of the currency of such payment and, if that currency
does not have a single recognised principal financial centre, a day on which the settlement system necessary to
accomplish such payment is open, (d) in relation to any notice or other communication, including notice contemplated
under Section 5(a)(i), a General Business Day (or a day that would have been a General Business Day but for the
occurrence of an event or circumstance which would, if it occurred with respect to payment, delivery or compliance
related to a Transaction, constitute or give rise to an Illegality or a Force Majeure Event) in the place specified in the
address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where
the relevant new account is to be located and (e) in relation to Section 5(a)(v)(2), a General Business Day in the relevant
locations for performance with respect to such Specified Transaction.
“Local Delivery Day” means, for purposes of Sections 5(a)(i) and 5(d), a day on which settlement systems necessary
to accomplish the relevant delivery are generally open for business so that the delivery is capable of being accomplished
in accordance with customary market practice, in the place specified in the relevant Confirmation or, if not so specified,
in a location as determined in accordance with customary market practice for the relevant delivery.
“Master Agreement” has the meaning specified in the preamble.
“Merger Without Assumption” means the event specified in Section 5(a)(viii).
“Multiple Transaction Payment Netting” has the meaning specified in Section 2(c).
“Non-affected Party” means, so long as there is only one Affected Party, the other party.
“Non-default Rate” means the rate certified by the Non-defaulting Party to be a rate offered to the Non-defaulting
Party by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be
selected in good faith by the Non-defaulting Party for the purpose of obtaining a representative rate that will reasonably
reflect conditions prevailing at the time in that relevant market.
“Non-defaulting Party” has the meaning specified in Section 6(a).
“Office” means a branch or office of a party, which may be such party’s head or home office.
“Other Amounts” has the meaning specified in Section 6(f).
25
ISDA® 2002
“Payee” has the meaning specified in Section 6(f).
“Payer” has the meaning specified in Section 6(f).
“Potential Event of Default” means any event which, with the giving of notice or the lapse of time or both, would
constitute an Event of Default.
“Proceedings” has the meaning specified in Section 13(b).
“Process Agent” has the meaning specified in the Schedule.
“rate of exchange” includes, without limitation, any premiums and costs of exchange payable in connection with the
purchase of or conversion into the Contractual Currency.
“Relevant Jurisdiction” means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised,
managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes
of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from
or through which such payment is made.
“Schedule” has the meaning specified in the preamble.
“Scheduled Settlement Date” means a date on which a payment or delivery is to be made under Section 2(a)(i) with
respect to a Transaction.
“Specified Entity” has the meaning specified in the Schedule.
“Specified Indebtedness” means, subject to the Schedule, any obligation (whether present or future, contingent or
otherwise, as principal or surety or otherwise) in respect of borrowed money.
“Specified Transaction” means, subject to the Schedule, (a) any transaction (including an agreement with respect to
any such transaction) now existing or hereafter entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any
Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is not a
Transaction under this Agreement but (i) which is a rate swap transaction, swap option, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond
option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency
swap transaction, cross-currency rate swap transaction, currency option, credit protection transaction, credit swap,
credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse
repurchase transaction, buy/sell-back transaction, securities lending transaction, weather index transaction or forward
purchase or sale of a security, commodity or other financial instrument or interest (including any option with respect
to any of these transactions) or (ii) which is a type of transaction that is similar to any transaction referred to in clause
(i) above that is currently, or in the future becomes, recurrently entered into in the financial markets (including terms
and conditions incorporated by reference in such agreement) and which is a forward, swap, future, option or other
derivative on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities
or other debt instruments, economic indices or measures of economic risk or value, or other benchmarks against which
payments or deliveries are to be made, (b) any combination of these transactions and (c) any other transaction identified
as a Specified Transaction in this Agreement or the relevant confirmation.
“Stamp Tax” means any stamp, registration, documentation or similar tax.
“Stamp Tax Jurisdiction” has the meaning specified in Section 4(e).
26
ISDA® 2002
“Tax” means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest,
penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar tax.
“Tax Event” has the meaning specified in Section 5(b).
“Tax Event Upon Merger” has the meaning specified in Section 5(b).
“Terminated Transactions” means, with respect to any Early Termination Date, (a) if resulting from an Illegality or a
Force Majeure Event, all Affected Transactions specified in the notice given pursuant to Section 6(b)(iv), (b) if resulting
from any other Termination Event, all Affected Transactions and (c) if resulting from an Event of Default, all Transactions
in effect either immediately before the effectiveness of the notice designating that Early Termination Date or, if Automatic
Early Termination applies, immediately before that Early Termination Date.
“Termination Currency” means (a) if a Termination Currency is specified in the Schedule and that currency is freely
available, that currency, and (b) otherwise, euro if this Agreement is expressed to be governed by English law or United
States Dollars if this Agreement is expressed to be governed by the laws of the State of New York.
“Termination Currency Equivalent” means, in respect of any amount denominated in the Termination Currency, such
Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination
Currency (the “Other Currency”), the amount in the Termination Currency determined by the party making the relevant
determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination
Date, or, if the relevant Close-out Amount is determined as of a later date, that later date, with the Termination Currency
at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase
of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange
agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other
Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise
will be agreed by the parties.
“Termination Event” means an Illegality, a Force Majeure Event, a Tax Event, a Tax Event Upon Merger or, if specified
to be applicable, a Credit Event Upon Merger or an Additional Termination Event.
“Termination Rate” means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of
any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts.
“Threshold Amount” means the amount, if any, specified as such in the Schedule.
“Transaction” has the meaning specified in the preamble.
“Unpaid Amounts” owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in
respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but
for Section 2(a)(iii) or due but for Section 5(d)) to such party under Section 2(a)(i) or 2(d)(i)(4) on or prior to such
Early Termination Date and which remain unpaid as at such Early Termination Date, (b) in respect of each Terminated
Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii) or 5
(d)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not
been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or
would have been) required to be delivered and (c) if the Early Termination Date results from an Event of Default,
a Credit Event Upon Merger or an Additional Termination Event in respect of which all outstanding Transactions
are Affected Transactions, any Early Termination Amount due prior to such Early Termination Date and which
remains unpaid as of such Early Termination Date, in each case together with any amount of interest accrued or
other
27
ISDA® 2002
compensation in respect of that obligation or deferred obligation, as the case may be, pursuant to Section 9(h)(ii)
(1) or (2), as appropriate. The fair market value of any obligation referred to in clause (b) above will be determined
as of the originally scheduled date for delivery, in good faith and using commercially reasonable procedures, by
the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it will be the average
of the Termination Currency Equivalents of the fair market values so determined by both parties.
“Waiting Period” means:?
(a)
in respect of an event or circumstance under Section 5(b)(i), other than in the case of Section 5(b)(i)(2) where
the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period
will apply), a period of three Local Business Days (or days that would have been Local Business Days but for the
occurrence of that event or circumstance) following the occurrence of that event or circumstance; and
(b)
in respect of an event or circumstance under Section 5(b)(ii), other than in the case of Section 5(b)(ii)(2) where
the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period
will apply), a period of eight Local Business Days (or days that would have been Local Business Days but for the
occurrence of that event or circumstance) following the occurrence of that event or circumstance.
IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect
from the date specified on the first page of this document.
RBS CITIZENS, N.A.
LKQ CORPORATION
By:
Name:
Title:
/s/ MICHAEL T. LIBERATORE
Michael T. Liberatore
VP
By:
Name:
Title:
/s/ JOHN S. QUINN
John S. Quinn
Executive Vice President & C.F.O.
28
ISDA® 2002
ISDA
International Swaps and Derivatives Association, Inc.
SCHEDULE
to the
2002 Master Agreement
dated as of September 18, 2013
between
RBS CITIZENS, N.A.,
a national bank organized under the laws of the United States
of America,
(“Party A”)
and
LKQ CORPORATION,
a corporation organized and existing under the laws of Delaware,
(“Party B”)
Part 1
Termination Provisions
(a)
“Specified Entity” means in relation to Party A for the purpose of Sections 5(a)(v), 5(a)(vi),
5(a)(vii) and 5(b)(v): none;
“Specified Entity” means in relation to Party B for the purpose of Sections 5(a)(v), 5(a)(vi),
5(a)(vii) and 5(b)(v): none.
“Specified Transaction” will have the meaning specified in Section 14 but shall also include
any transaction with respect to margin loans, cash loans and short sales of any financial
instrument, and as amended by inserting the words, “or Citizens Bank of Pennsylvania”
immediately after “Agreement” in the second line thereof.
The “Cross-Default” provisions of Section 5(a)(vi):
will apply to Party A
and will apply to Party B.
(b)
(c)
In connection therewith, “Specified Indebtedness” will not have the meaning specified in
Section 14, and such definition shall be replaced by the following: “any obligation in respect
of the payment or repayment of moneys (whether present or future, contingent or otherwise,
as principal or surety or otherwise), including, but without limitation, any obligation in
respect of borrowed money except that such term shall not include obligations in respect of
deposits received in the ordinary course of a party’s banking business.”
“Threshold Amount” means with respect to Party A an amount equal to three percent (3%)
of the stockholders’ equity (however described) of RBS Citizens Financial Group, Inc. as
shown on the most recent annual audited financial statements of RBS Citizens Financial
Group, Inc. and with respect to Party B, $75,000,000.
“Credit Agreement” means the Second Amended and Restated Credit Agreement dated as
of March 25, 2011, as amended and restated as of September 30, 2011, as further amended
and restated as of May 3, 2013, among LKQ Corporation and LKQ Delaware LLP, the
Subsidiary Borrowers from time to time party thereto, the Lenders party thereto from time
to time, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America,
N.A., as Syndication Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd. and RBS Citizens,
N.A, as Co-Documentation Agents, as amended, extended, supplemented, restated or
otherwise modified in writing from time to time.
(d)
(e)
The “Credit Event Upon Merger” provisions of Section 5(b)(v):
will apply to Party A
will apply to Party B
The “Automatic Early Termination” provision of Section 6(a):
will not apply to Party A
will not apply to Party B.
(f)
“Termination Currency” means United States Dollars.
(g)
Additional Termination Event will apply.
It shall be an Additional Termination Event hereunder, with respect to which Party B shall
be the sole Affected Party, if (1) an Event of Default (as defined in the Credit Agreement)
occurs under the Credit Agreement, or if (2) the Credit Agreement shall be paid or prepaid
in full, expire, terminate, or otherwise cease to be in full effect.
Part 2
Tax Representations
(a)
Payer Tax Representations. For the purpose of Section 3(e) of this Agreement, Party A and
Party B will make the following representation:-
2
It is not required by any applicable law, as modified by the practice of any relevant
governmental revenue authority, of any Relevant Jurisdiction to make any deduction or
withholding for or on account of any Tax from any payment (other than interest under Section
9(h) of this Agreement) to be made by it to the other party under this Agreement. In making
this representation, it may rely on (i) the accuracy of any representations made by the other
party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the agreement
contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness
of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement and (iii) the satisfaction of the agreement of the other party contained in Section
4(d) of this Agreement, except that it will not be a breach of this representation where reliance
is placed on clause (ii) above and the other party does not deliver a form or document under
Section 4(a)(iii) by reason of material prejudice to its legal or commercial position.
(b)
Payee Tax Representations. For the purpose of Section 3(f) of this Agreement, Party A and
Party B will make the following representations specified below, if any:-
(i)
The following representations will apply to Party A:
Party A is a national bank organized under the laws of the United States of America, is a
“U.S. person” (as that term is used in section 1.1441-4(a)(3)(ii) of United States
Treasury Regulations) for U.S. federal income tax purposes, and its U.S. tax
identification number is 20-2635739.
(ii)
The following representations will apply to Party B:
Party B is a corporation created or organized under the laws of the State of Delaware
and the federal taxpayer identification number is 36-4215970.
Part 3
Agreement to Deliver Documents
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the
following documents:
(a)
Tax forms, documents or certificates to be delivered are:
Party required to
deliver document
Document
Party B
Internal Revenue Service Form W-9
Date by which to be delivered
Upon execution and delivery of
this Agreement
3
(b)
Other documents to be delivered are:-
Party required
to deliver
document
Party A and
Party B
Form/Document/Certificate
Certified copies of all corporate,
partnership or membership authorizations,
as the case may be, and any other
documents with respect to the execution,
delivery and performance of this
Agreement and any Credit Support
Document
Party A and
Party B
Certificate of authority and specimen
signatures of individuals executing this
Agreement and any Credit Support
Document
Party A
Party B
Annual Report of RBS Citizens Financial
Group, Inc. containing audited,
consolidated financial statements certified
by independent certified public accountants
and prepared in accordance with generally
accepted accounting principles in the
country in which such party is organized
Annual Report of Party B and of any
Credit Support Provider thereof containing
audited, consolidated financial statements
certified by independent certified public
accountants and prepared in accordance
with generally accepted accounting
principles in the country in which such
party and such Credit Support Provider is
organized
Date by which
to be delivered
Upon execution and
delivery of this
Agreement
Covered by
Section 3(d)
Representation
Yes
Yes
Yes
Yes
Upon execution and
delivery of this
Agreement and
thereafter upon request
of the other party
Upon request,
provided however that
publication of such
financial statements on
RBS Citizens
Financial Group, Inc.’s
website shall
constitute delivery for
purposes of this
provision, to the extent
accessible to Party A.
To be made available
on www.lkqcorp.com
as soon as available
and in any event
within 90 days after
the end of each fiscal
year of Party B and of
the Credit Support
Provider
4
Form/Document/Certificate
Quarterly Financial Statements of Party B
and any Credit Support Provider thereof
containing unaudited, consolidated
financial statements of such party’s fiscal
quarter prepared in accordance with
generally accepted accounting principles in
the country in which such party and such
Credit Support Provider is organized
Date by which
to be delivered
To be made available
on www.lkqcorp.com
as soon as available
and in any event
within 45 days after
the end of each fiscal
quarter of Party B and
of the Credit Support
Provider
Covered by
Section 3(d)
Representation
Yes
Party required
to deliver
document
Party B
Part 4
Miscellaneous
(a)
Address for Notices. For the purpose of Section 12(a) of this Agreement:-
Address for notice or communications to Party A:
Address:
RBS Citizens, N.A.
One Citizens Plaza
Providence, RI 02903
Attention: Treasury Operations
Telephone No.:
Facsimile No.:
(401) 282-7250
(401) 282-7718
with a copy to:
Address:
RBS Citizens, N.A.
28 State Street
Boston, MA 02109
Attention:
Legal Department
Telephone No.:
Facsimile No.:
(617) 725-5813
(617) 725-5620
5
Address for notice or communications to Party B:
Address:
Telephone No.:
Facsimile No.:
Email Address:
with a copy to:
Address:
LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, IL 60661
Attention: Jack B. Brooks
312/621-2774
866/669-2811
jbbrooks@lkqcorp.com
LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, IL 60661
Attention: Victor Casini
Telephone No.:
Facsimile No.:
Email Address:
312/621-2754
312/280-3730
victorcasini@lkqccorp.com
(b)
Process Agent. For the purpose of Section 13(c):
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
(c)
Offices. The provisions of Section 10(a) will apply to this Agreement.
(d) Multibranch Party. For the purpose of Section 10(b) of this Agreement:-
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e)
Calculation Agent. The Calculation Agent is Party A.
(f)
Credit Support Document. Details of any Credit Support Document:-
Each of the following, as amended, extended, supplemented or otherwise modified in writing
from time to time, is a “Credit Support Document”:
6
In relation to Party B, the Credit Agreement, and the Security Documents, or the Collateral
Documents, as the case may be, as defined in the Credit Agreement.
Party B agrees that the security interests in collateral granted to Party A or an Affiliate of
Party A by Party B and any Credit Support Provider under the foregoing Credit Support
Documents shall secure the obligations of Party B to Party A under this Agreement.
(g)
Credit Support Provider.
Credit Support Provider means in relation to party A: Not applicable.
Credit Support Provider means in relation to Party B: Subsidiary Borrowers and Subsidiary
Guarantors, each as defined in the Credit Agreement, excluding, however, any Subsidiary,
as defined in the Credit Agreement, that would become an Affected Foreign Subsidiary, as
defined in the Credit Agreement, if it guaranteed or became liable for, or granted any security
interests to secure, the obligations under this Agreement or any Transaction and excluding
any Subsidiary that is not an “Eligible Contract Participant” as such term is defined in the
U.S. Commodity Exchange Act, as amended.
(h)
(i)
Governing Law. This Agreement and any and all controversies arising out of or in relation
to this Agreement shall be governed by and construed in accordance with the laws of the
State of New York (without reference to its conflict of laws doctrine).
Netting of Payments. Unless the parties otherwise so agree, Section 2(c)(ii) of this
Agreement shall apply.
(j)
“Affiliate” will have the meaning specified in Section 14 of this Agreement.
(k)
Absence of Litigation. For the purpose of Section 3(c):-
“Specified Entity” means in relation to Party A, none;
“Specified Entity” means in relation to Party B, none.
(l)
No Agency. The provisions of Section 3(g) will apply to this Agreement.
(m)
Additional Representation will apply. For the purpose of Section 3 of this Agreement, each
of the following will constitute an Additional Representation:-
(i)
Relationship Between Parties. Each party will be deemed to represent to the other
party on the date on which it enters into a Transaction that (absent a written agreement
between the parties that expressly imposes affirmative obligations to the contrary
for that Transaction):-
(1)
Non-Reliance. It is acting for its own account, and, it has made its own
independent decisions to enter into that Transaction and as to whether that
Transaction is appropriate or proper for it based upon its own judgment and
upon advice from such advisors as it has deemed necessary. It is not relying
on any communication (written or oral) of the other party as
7
investment advice or as a recommendation to enter into that Transaction, it
being understood that information and explanations related to the terms and
conditions of a Transaction shall not be considered investment advice or a
recommendation to enter into that Transaction. No communication (written
or oral) received from the other party will be deemed to be an assurance or
guarantee as to the expected results of that Transaction.
(2)
Assessment and Understanding. It is capable of assessing the merits of and
understanding (on its own behalf or through independent professional
advice), and understands and accepts, the terms, conditions and risks of that
Transaction. It is also capable of assuming, and assumes, the risks of that
Transaction.
(3)
Status of Parties. The other party is not acting as a fiduciary for or an advisor
to it in respect of that Transaction.
(ii)
Each party makes the representations below (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into):
(1)
(2)
Eligible Contract Participant. Each party will be deemed to represent to the
other party on each date on which a Transaction is entered into that it is an “eligible
contract participant” and that each guarantor of its Swap Obligations (as defined
below), if any, is an “eligible contract participant,” as such term is defined in the
U.S. Commodity Exchange Act, as amended. For purposes of this provision, “Swap
Obligation” means an obligation incurred with respect to a transaction that is a
“swap” as defined in the Section 1a(47) of the Commodity Exchange Act and CFTC
Regulation 1.3(xxx).
Line of Business. It has entered into this Agreement (including each
Transaction evidenced hereby) in conjunction with its line of business
(including financial intermediation services) or the financing of its business.
It represents and warrants that all transactions effected under this Agreement
(a) will be appropriate in the conduct and management of its business, (b)
will be entered into for non-speculative purposes, and (c) as to Party B, Party
B represents that all Transactions effected under this Agreement constitute
transactions entered into for purposes of hedging or managing risks related
to its assets or liabilities as currently owned or incurred, or likely to be owned
or incurred in the conduct of its business.
(n)
Recording of Conversations. Each party to this Agreement acknowledges and agrees to
the recording of conversations between trading and marketing personnel of the parties to
this Agreement whether by one or other or both of the parties or their agents.
8
Part 5
Other Provisions
(a)
Financial Statements. Section 3(d) is hereby amended by adding in the third line thereof
after the word “respect” and before the period:
“or, in the case of financial statements, a fair presentation of the financial condition of the
relevant party.”
(b)
2002 Master Agreement Protocol. Annexes 1 to 18 and Section 6 of the ISDA 2002 Master
Agreement Protocol as published by the International Swaps and Derivatives Association,
Inc. on July 15, 2003 are incorporated into and apply to this Agreement. References in those
definitions and provisions to any ISDA Master Agreement will be deemed to be references
to this Master Agreement.
(c) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
ANY CREDIT SUPPORT DOCUMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
(d) Method of Notice. Section 12(a)(ii) of the Master Agreement is deleted in its entirety.
(e)
Safe Harbors. Each party to this Agreement acknowledges that:
(i)
(ii)
(iii)
This Agreement, including any Credit Support Document, is a “master netting
agreement” as defined in the U.S. Bankruptcy Code (the “Code”), and a “netting
contract” as defined in the netting provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (“FDICIA”), and this Agreement, including
any Credit Support Document, and each Transaction hereunder is of a type set forth
in Section 561(a)(1)-(5) of the Code;
Party A is a “master netting agreement participant,” a “financial institution,” a
“financial participant,”‘ a “forward contract merchant” and a “swap participant” as
defined in the Code, and a “financial institution” as defined in the netting provisions
of FDICIA;
The remedies provided herein, and in any Credit Support Document, are the remedies
referred to in Section 561(a), Sections 362(b)(6), (7), (17) and (27), and Section 362
(o) of the Code, and in Section 11(e)(8)(A) and (C) of the Federal Deposit Insurance
Act;
(iv) All transfers of cash, securities or other property under or in connection with this
Agreement, any Credit Support Document or any Transaction hereunder are “margin
payments,” “settlement payments” and “transfers” under Sections 546(c), (f), (g) or
(j), and under Section 548(d)(2) of the Code; and
9
(v)
Each obligation under this Agreement, any Credit Support Document or any
Transaction hereunder is an obligation to make a “margin payment,” “settlement
payment” and “payment” within the meaning of Sections 362, 560 and 561 of the
Code.
(f)
Hedge Agreement. Party B represents to Party A (which representation will be deemed to
be repeated by Party B on each date on which a Transaction is entered into) that this
Agreement is a Hedge Agreement as defined in the Credit Agreement.
(g) Withholding Tax Imposed on Payments to Non-U.S. Counterparties under the United
States Foreign Account Tax Compliance Act. (a) For purposes of any Payer Tax
Representation, the words “any Tax from any payment” shall not include any tax imposed
under Sections 1471 and 1472 of the Internal Revenue Code of 1986, as amended (or the
United States Treasury regulations or other guidance issued or any agreements entered into
thereunder) (“FATCA Withholding Tax”); (b) for the avoidance of doubt the parties agree
that for purposes of Section 2(d) of this Agreement the deduction or withholding of FATCA
Withholding Tax is required by applicable law; and (c) the definition of “Indemnifiable Tax”
shall not include any FATCA Withholding Tax.
(h)
(i)
Confirmations. For each Transaction that Party A and Party B agree to enter into under this
Agreement, Party A shall use reasonable efforts to promptly send to Party B a Confirmation
setting forth the terms of such Transaction by facsimile or other electronic means. Unless
Party B objects to the terms of a Transaction contained in any Confirmation within three
(3) Local Business Days of receipt thereof, the terms of such Confirmation shall be deemed
correct and accepted absent manifest error, unless a corrected Confirmation is sent by
Party A, within such three-day period, in which case Party B shall have two (2) Local
Business Days after receipt thereof to object to the terms contained in such corrected
Confirmation.
Only ECPs Can Be Guarantors. Notwithstanding anything to the contrary in this Agreement
or in any credit agreement or guaranty, no person providing a guaranty of any obligation of
Party B under this Agreement (each such person, a “Guarantor”) shall be deemed to be a
guarantor of, or to have granted a security interest to secure any guaranty by Guarantor of,
any Swap Obligation (as defined below) if such Guarantor is not an “Eligible Contract
Participant” as defined in the Commodity Exchange Act and the applicable rules and
regulations issued by the Commodity Futures Trading Commission and/or the Securities
and Exchange Commission (collectively, and as now or hereafter in effect, “the ECP Rules”)
at the time Party B entered into any applicable Transaction (each such Swap Obligation, an
“Excluded Swap Obligation”), but solely to the extent that the providing of such guaranty
by such Guarantor, or grant of a security interest to secure any guaranty by Guarantor, of
any Swap Obligation by such Guarantor would violate the ECP Rules or other applicable
law or regulation. Except as expressly set forth in the preceding sentence, nothing in this
Agreement shall be deemed to restrict, reduce or waive any obligation of any such Guarantor
under any guaranty or other Credit Support Document, and such guaranty or other Credit
Support Document shall continue to guarantee, or grant a security interest to secure, as
applicable, in accordance with its terms, each Swap Obligation that is not an Excluded Swap
Obligation.
10
(j)
(k)
(l)
The term “Swap Obligation” means any obligation of any person to pay or perform under
any Transaction that constitutes a “swap” as defined in the Commodity Exchange Act.
USA PATRIOT Act Notice. Party A hereby notifies Party B that pursuant to the requirements
of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the
“Act”), it is required to obtain, verify and record information that identifies Party B, which
information includes the name and address of Party B and other information that will allow
Party A to identify Party B in accordance with the Act.
The 1998 FX and Currency Option Definitions. Unless the parties expressly agree
otherwise in the Confirmation, any Confirmation made by the parties in relation to a
transaction which is an FX Transaction or a Currency Option Transaction as defined in
the 1998 FX and Currency Option Definitions published by ISDA, the Emerging Markets
Traders Association and the Foreign Exchange Committee (the "FX and Currency Option
Definitions") will be deemed to incorporate the FX and Currency Option Definitions.
Amendment and Restatement. This Agreement amends and restates each Prior
Agreement in its entirety with the effect that this Agreement shall be deemed to have
replaced each Prior Agreement, (b) each Prior Agreement shall no longer be in effect, and
(c) each outstanding transaction (however described) that was governed by any of the
Prior Agreements shall be a Transaction under this Agreement whether or not evidenced
by a confirmation (however described); provided however that each confirmation of a
transaction under any Prior Agreement shall survive such amendment and restatement,
shall be deemed a Confirmation under this Agreement, and if such confirmation refers to
any Prior Agreement, shall be deemed to refer to this Agreement.
“Prior Agreement” means the ISDA Master Agreement dated July 12, 2011 between Party A
and Party B.
IN WITNESS WHEREOF, the parties have executed this Schedule by their duly authorized
officers as of the date hereof:
RBS CITIZENS, N.A.
LKQ CORPORATION
By:
/s/ MICHAEL T. LIBERATORE
By:
/s/ JOHN S. QUINN
Name: Michael T. Liberatore
Name:
John S. Quinn
Title:
Date:
VP
10/30/13
Title:
Date:
Executive Vice President & C.F.O.
10/4/2013
11
Exhibit 10.26
ISDA
2002 MASTER AGREEMENT
International Swaps and Derivatives Association, Inc.
dated as of May 15, 2013
FIFTH THIRD BANK,
an Ohio banking corporation ("Party A")
and
LKQ CORPORATION,
a Delaware corporation ("Party B")
have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed
by this 2002 Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming
evidence (each a “Confirmation”) exchanged between the parties or otherwise effective for the purpose of confirming
or evidencing those Transactions. This 2002 Master Agreement and the Schedule are together referred to as this “Master
Agreement”.
Accordingly, the parties agree as follows:?
1.
Interpretation
Definitions. The terms defined in Section 14 and elsewhere in this Master Agreement will have the meanings
(a)
therein specified for the purpose of this Master Agreement.
Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions
(b)
of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement, such Confirmation will prevail for the purpose of the relevant Transaction.
Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all
(c)
Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the
parties would not otherwise enter into any Transactions.
2.
(a)
Obligations
General Conditions.
(i)
subject to the other provisions of this Agreement.
Each party will make each payment or delivery specified in each Confirmation to be made by it,
(ii)
Payments under this Agreement will be made on the due date for value on that date in the place of
the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required currency. Where settlement is
by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the
manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or
elsewhere in this Agreement.
Copyright © 2002 by International Swaps and Derivatives Association, Inc.
(iii)
Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no
Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing,
(2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred
or been effectively designated and (3) each other condition specified in this Agreement to be a condition
precedent for the purpose of this Section 2(a)(iii).
Change of Account. Either party may change its account for receiving a payment or delivery by giving notice
(b)
to the other party at least five Local Business Days prior to the Scheduled Settlement Date for the payment or delivery
to which such change applies unless such other party gives timely notice of a reasonable objection to such change.
(c)
Netting of Payments. If on any date amounts would otherwise be payable:?
(i)
in the same currency; and
(ii)
in respect of the same Transaction,
by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be
automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one
party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation
upon the party by which the larger aggregate amount would have been payable to pay to the other party the excess of
the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount and payment obligation will be determined
in respect of all amounts payable on the same date in the same currency in respect of those Transactions, regardless of
whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or
any Confirmation by specifying that “Multiple Transaction Payment Netting” applies to the Transactions identified as
being subject to the election (in which case clause (ii) above will not apply to such Transactions). If Multiple Transaction
Payment Netting is applicable to Transactions, it will apply to those Transactions with effect from the starting date
specified in the Schedule or such Confirmation, or, if a starting date is not specified in the Schedule or such Confirmation,
the starting date otherwise agreed by the parties in writing. This election may be made separately for different groups
of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments
or deliveries.
(d)
Deduction or Withholding for Tax.
Gross-Up. All payments under this Agreement will be made without any deduction or withholding
(i)
for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct
or withhold, then that party (“X”) will:?
(1)
promptly notify the other party (“Y”) of such requirement;
(2)
pay to the relevant authorities the full amount required to be deducted or withheld (including
the full amount required to be deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is
required or receiving notice that such amount has been assessed against Y;
(3)
reasonably acceptable to Y, evidencing such payment to such authorities; and
promptly forward to Y an official receipt (or a certified copy), or other documentation
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ISDA® 2002
(4)
if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is
otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the
net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against
X or Y) will equal the full amount Y would have received had no such deduction or withholding been
required. However, X will not be required to pay any additional amount to Y to the extent that it
would not be required to be paid but for:?
(A)
(a)(i), 4(a)(iii) or 4(d); or
the failure by Y to comply with or perform any agreement contained in Section 4
(B)
the failure of a representation made by Y pursuant to Section 3(f) to be accurate
and true unless such failure would not have occurred but for (I) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, after a Transaction is entered into
(regardless of whether such action is taken or brought with respect to a party to this
Agreement) or (II) a Change in Tax Law.
(ii)
Liability. If:?
(1)
X is required by any applicable law, as modified by the practice of any relevant
governmental revenue authority, to make any deduction or withholding in respect of which X would
not be required to pay an additional amount to Y under Section 2(d)(i)(4);
(2)
(3)
X does not so deduct or withhold; and
a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly
pay to X the amount of such liability (including any related liability for interest, but including any related
liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)
(i), 4(a)(iii) or 4(d)).
3.
Representations
Each party makes the representations contained in Sections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) and, if specified in the
Schedule as applying, 3(g) to the other party (which representations will be deemed to be repeated by each party on
each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until
the termination of this Agreement). If any “Additional Representation” is specified in the Schedule or any Confirmation
as applying, the party or parties specified for such Additional Representation will make and, if applicable, be deemed
to repeat such Additional Representation at the time or times specified for such Additional Representation.
(a)
Basic Representations.
Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation
(i)
or incorporation and, if relevant under such laws, in good standing;
Powers. It has the power to execute this Agreement and any other documentation relating to this
(ii)
Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement
and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary
action to authorise such execution, delivery and performance;
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ISDA® 2002
No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with
(iii)
any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or
other agency of government applicable to it or any of its assets or any contractual restriction binding on or
affecting it or any of its assets;
Consents. All governmental and other consents that are required to have been obtained by it with
(iv)
respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are
in full force and effect and all conditions of any such consents have been complied with; and
Obligations Binding. Its obligations under this Agreement and any Credit Support Document to
(v)
which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws
affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination
(b)
Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a
party.
Absence of Litigation. There is not pending or, to its knowledge, threatened against it, any of its Credit Support
(c)
Providers or any of its applicable Specified Entities any action, suit or proceeding at law or in equity or before any
court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform
its obligations under this Agreement or such Credit Support Document.
Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of
(d)
it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose
(e)
of this Section 3(e) is accurate and true.
Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose
(f)
of this Section 3(f) is accurate and true.
No Agency. It is entering into this Agreement, including each Transaction, as principal and not as agent of any
(g)
person or entity.
4.
Agreements
Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or
under any Credit Support Document to which it is a party:?
(a)
Furnish Specified Information. It will deliver to the other party or, in certain cases under clause (iii) below,
to such government or taxing authority as the other party reasonably directs:?
(i)
(ii)
any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;
any other documents specified in the Schedule or any Confirmation; and
4
ISDA® 2002
(iii)
upon reasonable demand by such other party, any form or document that may be required or reasonably
requested in writing in order to allow such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any deduction or withholding for or on
account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution
or submission of such form or document would not materially prejudice the legal or commercial position of
the party in receipt of such demand), with any such form or document to be accurate and completed in a manner
reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably
practicable.
Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of
(b)
any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary
in the future.
Comply With Laws. It will comply in all material respects with all applicable laws and orders to which it may
(c)
be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement
or any Credit Support Document to which it is a party.
Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate
(d)
and true promptly upon learning of such failure.
Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect
(e)
of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and
controlled or considered to have its seat, or where an Office through which it is acting for the purpose of this Agreement
is located (“Stamp Tax Jurisdiction”), and will indemnify the other party against any Stamp Tax levied or imposed upon
the other party or in respect of the other party’s execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.
5.
Events of Default and Termination Events
Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support
(a)
Provider of such party or any Specified Entity of such party of any of the following events constitutes (subject to
Sections 5(c) and 6(e)(iv)) an event of default (an “Event of Default”) with respect to such party:?
Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement
(i)
or delivery under Section 2(a)(i) or 9(h)(i)(2) or (4) required to be made by it if such failure is not remedied
on or before the first Local Business Day in the case of any such payment or the first Local Delivery Day in
the case of any such delivery after, in each case, notice of such failure is given to the party;
(ii)
Breach of Agreement; Repudiation of Agreement.
(1)
Failure by the party to comply with or perform any agreement or obligation (other than an
obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 9(h)(i)(2)
or (4) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i),
4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement
if such failure is not remedied within 30 days after notice of such failure is given to the party; or
(2)
validity of, this Master Agreement, any Confirmation executed and delivered by that party or any
the party disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the
5
ISDA® 2002
Transaction evidenced by such a Confirmation (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(iii)
Credit Support Default.
(1)
Failure by the party or any Credit Support Provider of such party to comply with or perform
any agreement or obligation to be complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any applicable grace period has elapsed;
(2)
the expiration or termination of such Credit Support Document or the failing or ceasing of
such Credit Support Document, or any security interest granted by such party or such Credit Support
Provider to the other party pursuant to any such Credit Support Document, to be in full force and
effect for the purpose of this Agreement (in each case other than in accordance with its terms) prior
to the satisfaction of all obligations of such party under each Transaction to which such Credit Support
Document relates without the written consent of the other party; or
(3)
the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in
whole or in part, or challenges the validity of, such Credit Support Document (or such action is taken
by any person or entity appointed or empowered to operate it or act on its behalf);
Misrepresentation. A representation (other than a representation under Section 3(e) or 3(f)) made or
(iv)
repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party
in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material
respect when made or repeated or deemed to have been made or repeated;
Default Under Specified Transaction. The party, any Credit Support Provider of such party or any
(v)
applicable Specified Entity of such party:?
(1)
defaults (other than by failing to make a delivery) under a Specified Transaction or any
credit support arrangement relating to a Specified Transaction and, after giving effect to any applicable
notice requirement or grace period, such default results in a liquidation of, an acceleration of
obligations under, or an early termination of, that Specified Transaction;
(2)
defaults, after giving effect to any applicable notice requirement or grace period, in making
any payment due on the last payment or exchange date of, or any payment on early termination of,
a Specified Transaction (or, if there is no applicable notice requirement or grace period, such default
continues for at least one Local Business Day);
(3)
defaults in making any delivery due under (including any delivery due on the last delivery
or exchange date of) a Specified Transaction or any credit support arrangement relating to a Specified
Transaction and, after giving effect to any applicable notice requirement or grace period, such default
results in a liquidation of, an acceleration of obligations under, or an early termination of, all
transactions outstanding under the documentation applicable to that Specified Transaction; or
disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of,
(4)
a Specified Transaction or any credit support arrangement relating to a Specified Transaction that is,
in either case, confirmed or evidenced by a document or other confirming evidence executed and
delivered by that party, Credit Support Provider or Specified Entity (or such action is taken by any
person or entity appointed or empowered to operate it or act on its behalf);
6
ISDA® 2002
Cross-Default. If "Cross-Default" is specified in the Schedule as applying to the party, the occurrence
(vi)
or existence of:?
(1)
a default, event of default or other similar condition or event (however described) in respect
of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under
one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or
collectively) where the aggregate principal amount of such agreements or instruments, either alone or together
with the amount, if any, referred to in clause (2) below, is not less than the applicable Threshold Amount (as
specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable
at such time of being declared, due and payable under such agreements or instruments before it would otherwise
have been due and payable; or
(2)
a default by such party, such Credit Support Provider or such Specified Entity (individually
or collectively) in making one or more payments under such agreements or instruments on the due date for
payment (after giving effect to any applicable notice requirement or grace period) in an aggregate amount,
either alone or together with the amount, if any, referred to in clause (1) above, of not less than the applicable
Threshold Amount;
Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity
(vii)
of such party:?
(1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes
insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they
become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors;
(4)(A) institutes or has instituted against it, by a regulator, supervisor or any similar official with primary
insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organisation
or the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy
or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or
a petition is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official,
or (B) has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief
under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented
for its winding-up or liquidation, and such proceeding or petition is instituted or presented by a person or
entity not described in clause (A) above and either (I) results in a judgment of insolvency or bankruptcy or
the entry of an order for relief or the making of an order for its winding-up liquidation or (II) is not dismissed,
discharged, stayed or restrained in each case within 15 days of the institution or presentation thereof; (5) has
a resolution passed for its winding-up, official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment or an administrator,
provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all
or substantially all its assets and such secured party maintains possession, or any such process is not dismissed,
discharged, stayed or restrained, in each case within 15 days thereafter; (8) causes or is subject to any event
with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the
events specified in clauses (1) to (7) above (inclusive); or (9) takes any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the foregoing acts; or
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ISDA® 2002
(viii) Merger Without Assumption. The party or any Credit Support Provider or such party consolidates
or amalgamates with, or merges with or into, or transfers all substantially all its assets to, or reorganises,
reincorporates or reconstitutes into or as, another entity and, at the time of such consolidation, amalgamation,
merger, transfer, reorganisation, reincorporation or reconstitution:?
(1)
the resulting, surviving or transferee entity to assume all the obligations of such party or
such Credit Support Provider under this Agreement or any Credit Support Document to which it or its
predecessor was a party; or
(2)
the benefits of any Credit Support Document fail to extend (without the consent of the other
party) to the performance by resulting, surviving or transferee entity of its obligations under this Agreement.
Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit
(b)
Support Provider of such party or any Specified Entity of such party of any event specified below constitutes (subject
to Section 5 (c)) an Illegality if the event is specified in clause (i) below, a Force Majeure Event if the event is specified
in clause (ii) below, a Tax Event if the event is specified in clause (iii) below, a Tax Event Upon Merger if the event is
specified pursuant to clause (iv) below, and , if specified to be applicable, a Credit Event Upon Merger if the event is
specified pursuant to clause (v) below, or an Additional Termination Event if the event is specified pursuant to clause
(vi) below:?
Illegality. After giving effect to any applicable provision, disruption fallback or remedy specified in,
(i)
or pursuant to, the relevant Confirmation or elsewhere in this Agreement, due to an event or circumstance
(other than any action taken by a party or, if applicable, any Credit Support Provider of such party) occurring
after a Transaction is entered into, it becomes unlawful under any applicable law (including without limitation
the laws of any country in which payment, delivery or compliance is required by either party or any Credit
Support Provider, as the case may be), on any day, or it would be unlawful if the relevant payment, delivery
or compliance were required on that day (in each case, other than as a result of a breach by the party of Section
4(b)):?
(1)
for the Office through which such party (which will be the Affected Party) makes and receives
payments or deliveries with respect to such Transaction to perform any absolute or contingent
obligation to make a payment or delivery in respect of such Transaction, to receive a payment or
delivery in respect of such Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
for such party or any Credit Support Provider of such party (which will be the Affected
(2)
Party) to perform any absolute or contingent obligation to make a payment or delivery which such
party or Credit Support Provider has under any Credit Support Document relating to such Transaction,
to receive a payment or delivery under such Credit Support Document or to comply with any other
material provision of such Credit Support Document;
Force Majeure Event. After giving effect to any applicable provision, disruption fallback or remedy
(ii)
specified in, or pursuant to, the relevant Confirmation or elsewhere in this Agreement, by reason of force
majeure or act of state occurring after a Transaction is entered into, on any day:?
(1)
the Office through which such party (which will be the Affected Party) makes and receives
payments or deliveries with respect to such Transaction is prevented from performing any absolute
or contingent obligation to make a payment or delivery in respect of such Transaction, from receiving
a payment or delivery in respect of such Transaction or from complying with any other material
provision of this Agreement relating to such Transaction (or would be so prevented if such payment,
delivery or compliance were required on that day), or it becomes impossible or
8
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impracticable for such Office so to perform, receive or comply (or it would be impossible or
impracticable for such Office so to perform, receive or comply if such payment, delivery or compliance
were required on that day); or
(2)
such party or any Credit Support Provider of such party (which will be the Affected Party)
is prevented from performing any absolute or contingent obligation to make a payment or delivery
which such party or Credit Support Provider has under any Credit Support Document relating to such
Transaction, from receiving a payment or delivery under such Credit Support Document or from
complying with any other material provision of such Credit Support Document (or would be so
prevented if such payment, delivery or compliance were required on that day), or it becomes
impossible or impracticable for such party or Credit Support Provider so to perform, receive or comply
(or it would be impossible or impracticable for such party or Credit Support Provider so to perform,
receive or comply if such payment, delivery or compliance were required on that day),
so long as the force majeure or act of state is beyond the control of such Office, such party or such Credit
Support Provider, as appropriate, and such Office, party or Credit Support Provider could not, after using all
reasonable efforts (which will not require such party or Credit Support Provider to incur a loss, other than
immaterial, incidental expenses), overcome such prevention, impossibility or impracticability;
Tax Event. Due to (1) any action taken by a taxing authority, or brought in a court of competent
(iii)
jurisdiction, after a Transaction is entered into (regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (2) a Change in Tax Law, the party (which will be the Affected Party)
will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Settlement Date (A) be
required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)
(i)(4) (except in respect of interest under Section 9(h)) or (B) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 9
(h)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than
by reason of Section 2(d)(i)(4)(A) or (B));
Tax Event Upon Merger. The party (the “Burdened Party”) on the next succeeding Scheduled
(iv)
Settlement Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax
under Section 2(d)(i)(4) (except in respect of interest under Section 9(h)) or (2) receive a payment from which
an amount has been deducted or withheld for or on account of any Tax in respect of which the other party is
not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case
as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or
substantially all its assets (or any substantial part of the assets comprising the business conducted by it as of
the date of this Master Agreement) to, or reorganising, reincorporating or reconstituting into or as, another
entity (which will be the Affected Party) where such action does not constitute a Merger Without Assumption;
Credit Event Upon Merger. If “Credit Event Upon Merger” is specified in the Schedule as applying
(v)
to the party, a Designated Event (as defined below) occurs with respect to such party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (in each case, “X”) and such Designated
Event does not constitute a Merger Without Assumption, and the creditworthiness of X or, if applicable, the
successor, surviving or transferee entity of X, after taking into account any applicable Credit Support Document,
is materially weaker immediately after the occurrence of such Designated Event than that of X immediately
prior to the occurrence of such Designated Event (and, in any such event, such party or its successor, surviving
or transferee entity, as appropriate, will be the Affected Party). A “Designated Event” with respect to X means
that:?
X consolidates or amalgamates with, or merges with or into, or transfers all or substantially
(1)
all its assets (or any substantial part of the assets comprising the business conducted by X as of the
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date of this Master Agreement) to, or reorganises, reincorporates or reconstitutes into or as, another
entity;
(2)
any person, related group of persons or entity acquires directly or indirectly the beneficial
ownership of (A) equity securities having the power to elect a majority of the board of directors (or
its equivalent) of X or (B) any other ownership interest enabling it to exercise control of X; or
(3)
X effects any substantial change in its capital structure by means of the issuance, incurrence
or guarantee of debt or the issuance of (A) preferred stock or other securities convertible into or
exchangeable for debt or preferred stock or (B) in the case of entities other than corporations, any
other form of ownership interest; or
Additional Termination Event. If any “Additional Termination Event” is specified in the Schedule
(vi)
or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or
Affected Parties will be as specified for such Additional Termination Event in the Schedule or such
Confirmation).
(c)
Hierarchy of Events.
(i)
An event or circumstance that constitutes or gives rise to an Illegality or a Force Majeure Event will
not, for so long as that is the case, also constitute or give rise to an Event of Default under Section 5(a)(i), 5
(a)(ii)(1) or 5(a)(iii)(1) insofar as such event or circumstance relates to the failure to make any payment or
delivery or a failure to comply with any other material provision of this Agreement or a Credit Support
Document, as the case may be.
(ii)
Except in circumstances contemplated by clause (i) above, if an event or circumstance which would
otherwise constitute or give rise to an Illegality or a Force Majeure Event also constitutes an Event of Default
or any other Termination Event, it will be treated as an Event of Default or such other Termination Event, as
the case may be, and will not constitute or give rise to an Illegality or a Force Majeure Event.
If an event or circumstance which would otherwise constitute or give rise to a Force Majeure Event
(iii)
also constitutes an Illegality, it will be treated as an Illegality, except as described in clause (ii) above, and not
a Force Majeure Event.
Deferral of Payments and Deliveries During Waiting Period. If an Illegality or a Force Majeure Event has
(d)
occurred and is continuing with respect to a Transaction, each payment or delivery which would otherwise be required
to be made under that Transaction will be deferred to, and will not be due until:?
(i)
the first Local Business Day or, in the case of a delivery, the first Local Delivery Day (or the first
day that would have been a Local Business Day or Local Delivery Day, as appropriate, but for the occurrence
of the event or circumstance constituting or giving rise to that Illegality or Force Majeure Event) following
the end of any applicable Waiting Period in respect of that Illegality or Force Majeure Event, as the case may
be; or
(ii)
if earlier, the date on which the event or circumstance constituting or giving rise to that Illegality or
Force Majeure Event ceases to exist or, if such date is not a Local Business Day or, in the case of a delivery,
a Local Delivery Day, the first following day that is a Local Business Day or Local Delivery Day, as appropriate.
Inability of Head or Home Office to Perform Obligations of Branch. If (i) an Illegality or a Force Majeure
(e)
Event occurs under Section 5(b)(i)(1) or 5(b)(ii)(1) and the relevant Office is not the Affected Party’s head or home
office, (ii) Section 10(a) applies, (iii) the other party seeks performance of the relevant obligation or
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compliance with the relevant provision by the Affected Party’s head or home office and (iv) the Affected Party’s head
or home office fails so to perform or comply due to the occurrence of an event or circumstance which would, if that
head or home office were the Office through which the Affected Party makes and receives payments and deliveries
with respect to the relevant Transaction, constitute or give rise to an Illegality or a Force Majeure Event, and such
failure would otherwise constitute an Event of Default under Section 5(a)(i)or 5(a)(iii)(1) with respect to such party,
then, for so long as the relevant event or circumstance continues to exist with respect to both the Office referred to in
Section 5(b)(i)(1) or 5(b)(ii)(1), as the case may be, and the Affected Party’s head or home office, such failure will not
constitute an Event of Default under Section 5(a)(i) or 5(a)(iii)(1).
6.
Early Termination; Close-Out Netting
Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party
(a)
(the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not
more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier
than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however,
“Automatic Early Termination” is specified in the Schedule as applying to a party, then an Early Termination Date in
respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time
immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the
occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous
thereto, (8).
(b)
Right to Terminate Following Termination Event.
Notice. If a Termination Event other than a Force Majeure Event occurs, an Affected Party will,
(i)
promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event
and each Affected Transaction, and will also give the other party such other information about that Termination
Event as the other party may reasonably require. If a Force Majeure Event occurs, each party will, promptly
upon becoming aware of it, use all reasonable efforts to notify the other party, specifying the nature of that
Force Majeure Event, and will also give the other party such other information about that Force Majeure Event
as the other party may reasonably require.
Transfer to Avoid Termination Event. If a Tax Event occurs and there is only one Affected Party, or
(ii)
if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as
a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts
(which will not require such party to incur a loss, other than immaterial, incidental expenses) to transfer within
20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect
of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to
exist.
If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within
such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is
given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written
consent of the other party, which consent will not be withheld if such other party’s policies in effect at such
time would permit it to enter into transactions with the transferee on the terms proposed.
Two Affected Parties. If a Tax Event occurs and there are two Affected Parties, each party will use
(iii)
all reasonable efforts to reach agreement within 30 days after notice of such occurrence is given under Section
6(b)(i) to avoid that Termination Event.
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(iv)
Right to Terminate.
(1)
If:?
(A)
a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case
may be, has not been effected with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(B)
Event Upon Merger occurs and the Burdened Party is not the Affected Party,
a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax
the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax
Event or an Additional Termination Event if there are two Affected Parties, or the Non-affected Party
in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, if the relevant Termination Event is then continuing, by not more than 20 days
notice to the other party, designate a day not earlier than the day such notice is effective as an Early
Termination Date in respect of all Affected Transactions.
(2)
and any applicable Waiting Period has expired:?
If at any time an Illegality or a Force Majeure Event has occurred and is then continuing
(A)
Subject to clause (B) below, either party may, by not more than 20 days notice to
the other party, designate (I) a day not earlier than the day on which such notice becomes
effective as an Early Termination Date in respect of all Affected Transactions or (II) by
specifying in that notice the Affected Transactions in respect of which it is designating the
relevant day as an Early Termination Date, a day not earlier than two Local Business Days
following the day on which such notice becomes effective as an Early Termination Date in
respect of less than all Affected Transactions. Upon receipt of a notice designating an Early
Termination Date in respect of less than all Affected Transactions, the other party may, by
notice to the designating party, if such notice is effective on or before the day so designated,
designate that same day as an Early Termination Date in respect of any or all other Affected
Transactions.
(B)
An Affected Party (if the Illegality or Force Majeure Event relates to performance
by such party or any Credit Support Provider of such party of an obligation to make any
payment or delivery under, or to compliance with any other material provision of, the relevant
Credit Support Document) will only have the right to designate an Early Termination Date
under Section 6(b)(iv)(2)(A) as a result of an Illegality under Section 5(b)(i)(2) or a Force
Majeure Event under Section 5(b)(ii)(2) following the prior designation by the other party
of an Early Termination Date, pursuant to Section 6(b)(iv)(2)(A), in respect of less than all
Affected Transactions.
(c)
Effect of Designation.
If notice designating an Early Termination Date is given under Section 6(a) or 6(b), the Early
(i)
Termination Date will occur on the date so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii)
Upon the occurrence or effective designation of an Early Termination Date, no further payments or
deliveries under Section 2(a)(i) or 9(h)(i) in respect of the Terminated Transactions will be required to be
made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect
of an Early Termination Date will be determined pursuant to Sections 6(e) and 9(h)(ii).
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(d)
Calculations; Payment Date.
Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination
(i)
Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide
to the other party a statement (1) showing, in reasonable detail, such calculations (including any quotations,
market data or information from internal sources used in making such calculations), (2) specifying (except
where there are two Affected Parties) any Early Termination Amount payable and (3) giving details of the
relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from
the source of a quotation or market data obtained in determining a Close-out Amount, the records of the party
obtaining such quotation or market data will be conclusive evidence of the existence and accuracy of such
quotation or market data.
Payment Date. An Early Termination Amount due in respect of any Early Termination Date will,
(ii)
together with any amount of interest payable pursuant to Section 9(h)(ii)(2), be payable (1) on the day on
which notice of the amount payable is effective in the case of an Early Termination Date which is designated
or occurs as a result of an Event of Default and (2) on the day which is two Local Business Days after the day
on which notice of the amount payable is effective (or, if there are two Affected Parties, after the day on which
the statement provided pursuant to clause (i) above by the second party to provide such a statement is effective)
in the case of an Early Termination Date which is designated as a result of a Termination Event.
Payments on Early Termination. If an Early Termination Date occurs, the amount, if any, payable in respect
(e)
of that Early Termination Date (the “Early Termination Amount”) will be determined pursuant to this Section 6(e) and
will be subject to Section 6(f).
Events of Default. If the Early Termination Date results from an Event of Default, the Early
(i)
Termination Amount will be an amount equal to (1) the sum of (A) the Termination Currency Equivalent of
the Close-out Amount or Close-out Amounts (whether positive or negative) determined by the Non-defaulting
Party for each Terminated Transaction or group of Terminated Transactions, as the case may be, and (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (2) the
Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If the Early
Termination Amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is
a negative number, the Non-defaulting Party will pay the absolute value of the Early Termination Amount to
the Defaulting Party.
(ii)
Termination Events. If the Early Termination Date results from a Termination Event:?
One Affected Party. Subject to clause (3) below, if there is one Affected Party, the Early
(1)
Termination Amount will be determined in accordance with Section 6(e)(i), except that references
to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected
Party and to the Non-affected Party, respectively.
Two Affected Parties. Subject to clause (3) below, if there are two Affected Parties, each
(2)
party will determine an amount equal to the Termination Currency Equivalent of the sum of the Close-
out Amount or Close-out Amounts (whether positive or negative) for each Terminated Transaction
or group of Terminated Transactions, as the case may be, and the Early Termination Amount will be
an amount equal to (A) the sum of (I) one-half of the difference between the higher amount so
determined (by party “X”) and the lower amount so determined (by party “Y”) and (II) the Termination
Currency Equivalent of the Unpaid Amounts owing to X less (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to Y. If the Early Termination Amount is a positive number, Y will
pay it to X; if it is a negative number, X will pay the absolute value of the Early Termination Amount
to Y.
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Mid-Market Events. If that Termination Event is an Illegality or a Force Majeure Event, then
(3)
the Early Termination Amount will be determined in accordance with clause (1) or (2) above, as
appropriate, except that, for the purpose of determining a Close-out Amount or Close-out Amounts,
the Determining Party will:?
(A)
if obtaining quotations from one or more third parties (or from any of the
Determining Party’s Affiliates), ask each third party or Affiliate (I) not to take account of
the current creditworthiness of the Determining Party or any existing Credit Support
Document and (II) to provide mid-market quotations; and
(B)
the Determining Party.
in any other case, use mid-market values without regard to the creditworthiness of
Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs
(iii)
because Automatic Early Termination applies in respect of a party, the Early Termination Amount
will be subject to such adjustments as are appropriate and permitted by applicable law to reflect any
payments or deliveries made by one party to the other under this Agreement (and retained by such
other party) during the period from the relevant Early Termination Date to the date for payment
determined under Section 6(d)(ii).
Adjustment for Illegality or Force Majeure Event. The failure by a party or any Credit
(iv)
Support Provider of such party to pay, when due, any Early Termination Amount will not constitute
an Event of Default under Section 5(a)(i) or 5(a)(iii)(1) if such failure is due to the occurrence of an
event or circumstance which would, if it occurred with respect to payment, delivery or compliance
related to a Transaction, constitute or give rise to an Illegality or a Force Majeure Event. Such amount
will (1) accrue interest and otherwise be treated as an Unpaid Amount owing to the other party if
subsequently an Early Termination Date results from an Event of Default, a Credit Event Upon Merger
or an Additional Termination Event in respect of which all outstanding Transactions are Affected
Transactions and (2) otherwise accrue interest in accordance with Section 9(h)(ii)(2).
Pre-Estimate. The parties agree that an amount recoverable under this Section 6(e) is a
(v)
reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks, and, except as otherwise provided in this Agreement, neither
party will be entitled to recover any additional damages as a consequence of the termination of the
Terminated Transactions.
Set-Off. Any Early Termination Amount payable to one party (the “Payee”) by the other party (the “Payer”),
(f)
in circumstances where there is a Defaulting Party or where there is one Affected Party in the case where either a Credit
Event Upon Merger has occurred or any other Termination Event in respect of which all outstanding Transactions are
Affected Transactions has occurred, will, at the option of the Non-defaulting Party or the Non-affected Party, as the
case may be (“X”) (and without prior notice to the Defaulting Party or the Affected Party, as the case may be), be
reduced by its set-off against any other amounts (“Other Amounts”) payable by the Payee to the Payer (whether or not
arising under this Agreement, matured or contingent and irrespective of the currency, place of payment or place of
booking of the obligation). To the extent that any Other Amounts are so set off, those Other Amounts will be discharged
promptly and in all respects. X will give notice to the other party of any set-off effected under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other Amounts (or the relevant portion of such amounts)
may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party
would be able, in good faith and using commercially reasonable procedures, to purchase the relevant amount of such
currency.
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If an obligation is unascertained, X may in good faith estimate that obligation and set off in respect of the estimate,
subject to the relevant party accounting to the other when the obligation is ascertained.
Nothing in this Section 6(f) will be effective to create a charge or other security interest. This Section 6(f) will be
without prejudice and in addition to any right of set-off, offset, combination of accounts, lien, right of retention or
withholding or similar right or requirement to which any party is at any time otherwise entitled or subject (whether by
operation of law, contract or otherwise).
7.
Transfer
Subject to Section 6(b)(ii) and to the extent permitted by applicable law, neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party, except that:?
(a)
a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or
merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other
right or remedy under this Agreement); and
(b)
a party may make such a transfer of all or any part of its interest in any Early Termination Amount payable to
it by a Defaulting Party, together with any amounts payable on or with respect to that interest and any other rights
associated with that interest pursuant to Sections 8, 9(h) and 11.
Any purported transfer that is not in compliance with this Section 7 will be void.
8.
Contractual Currency
Payment in the Contractual Currency. Each payment under this Agreement will be made in the relevant
(a)
currency specified in this Agreement for that payment (the “Contractual Currency”). To the extent permitted by
applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged
or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results
in the actual receipt by the party to which payment is owed, acting in good faith and using commercially reasonable
procedures in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual
Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency
so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required
to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the
Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual
Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party
receiving the payment will refund promptly the amount of such excess.
Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other
(b)
than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii)
for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a
judgment or order of another court for the payment of any amount described in clause (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or
order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency
received by such party as a consequence of sums paid in such other currency and will refund promptly to the other
party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other
currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the
Contractual Currency is converted into the currency of the judgment or order for the purpose of such judgment or order
and the rate of exchange at which such party is able, acting in good faith and using
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commercially reasonable procedures in converting the currency received into the Contractual Currency, to purchase
the Contractual Currency with the amount of the currency of the judgment or order actually received by such party.
Separate Indemnities. To the extent permitted by applicable law, the indemnities in this Section 8 constitute
(c)
separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and
independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment
is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable
in respect of this Agreement.
Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would
(d)
have suffered a loss had an actual exchange or purchase been made.
9.
Miscellaneous
Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with
(a)
respect to its subject matter. Each of the parties acknowledges that in entering into this Agreement it has not relied on
any oral or written representation, warranty or other assurance (except as provided for or referred to in this Agreement)
and waives all rights and remedies which might otherwise be available to it in respect thereof, except that nothing in
this Agreement will limit or exclude any liability of a party for fraud.
Amendments. An amendment, modification or waiver in respect of this Agreement will only be effective if
(b)
in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed
by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system.
Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under
(c)
this Agreement will survive the termination of any Transaction.
Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges
(d)
provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided
by law.
(e)
Counterparts and Confirmations.
(i)
This Agreement (and each amendment, modification and waiver in respect of it) may be executed
and delivered in counterparts (including by facsimile transmission and by electronic messaging system), each
of which will be deemed an original.
(ii)
The parties intend that they are legally bound by the terms of each Transaction from the moment they
agree to those terms (whether orally or otherwise). A Confirmation will be entered into as soon as practicable
and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an
exchange of telexes, by an exchange of electronic messages on an electronic messaging system or by an
exchange of e-mails, which in each case will be sufficient for all purposes to evidence a binding supplement
to this Agreement. The parties will specify therein or through another effective means that any such counterpart,
telex, electronic message or e-mail constitutes a Confirmation.
No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement
(f)
will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be
presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other
right, power or privilege.
Headings. The headings used in this Agreement are for convenience of reference only and are not to affect
(g)
the construction of or to be taken into consideration in interpreting this Agreement.
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(h)
Interest and Compensation.
(i)
Date in respect of the relevant Transaction:?
Prior to Early Termination. Prior to the occurrence or effective designation of an Early Termination
Interest on Defaulted Payments. If a party defaults in the performance of any payment
(1)
obligation, it will, to the extent permitted by applicable law and subject to Section 6(c), pay interest
(before as well as after judgment) on the overdue amount to the other party on demand in the same
currency as the overdue amount, for the period from (and including) the original due date for payment
to (but excluding) the date of actual payment (and excluding any period in respect of which interest
or compensation in respect of the overdue amount is due pursuant to clause (3)(B) or (C) below), at
the Default Rate.
Compensation for Defaulted Deliveries. If a party defaults in the performance of any
(2)
obligation required to be settled by delivery, it will on demand (A) compensate the other party to the
extent provided for in the relevant Confirmation or elsewhere in this Agreement and (B) unless
otherwise provided in the relevant Confirmation or elsewhere in this Agreement, to the extent
permitted by applicable law and subject to Section 6(c), pay to the other party interest (before as well
as after judgment) on an amount equal to the fair market value of that which was required to be
delivered in the same currency as that amount, for the period from (and including) the originally
scheduled date for delivery to (but excluding) the date of actual delivery (and excluding any period
in respect of which interest or compensation in respect of that amount is due pursuant to clause (4)
below), at the Default Rate. The fair market value of any obligation referred to above will be
determined as of the originally scheduled date for delivery, in good faith and using commercially
reasonable procedures, by the party that was entitled to take delivery.
(3)
Interest on Deferred Payments. If:?
(A)
a party does not pay any amount that, but for Section 2(a)(iii), would have been
payable, it will, to the extent permitted by applicable law and subject to Section 6(c) and
clauses (B) and (C) below, pay interest (before as well as after judgment) on that amount to
the other party on demand (after such amount becomes payable) in the same currency as
that amount, for the period from (and including) the date the amount would, but for Section
2(a)(iii), have been payable to (but excluding) the date the amount actually becomes payable,
at the Applicable Deferral Rate;
a payment is deferred pursuant to Section 5(d), the party which would otherwise
(B)
have been required to make that payment will, to the extent permitted by applicable law,
subject to Section 6(c) and for so long as no Event of Default or Potential Event of Default
with respect to that party has occurred and is continuing, pay interest (before as well as after
judgment) on the amount of the deferred payment to the other party on demand (after such
amount becomes payable) in the same currency as the deferred payment, for the period from
(and including) the date the amount would, but for Section 5(d), have been payable to (but
excluding) the earlier of the date the payment is no longer deferred pursuant to Section 5
(d) and the date during the deferral period upon which an Event of Default or Potential Event
of Default with respect to that party occurs, at the Applicable Deferral Rate; or
(C)
a party fails to make any payment due to the occurrence of an Illegality or a Force
Majeure Event (after giving effect to any deferral period contemplated by clause (B) above),
it will, to the extent permitted by applicable law, subject to Section 6(c) and for so long as
the event or circumstance giving rise to that Illegality or Force Majeure Event
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continues and no Event of Default or Potential Event of Default with respect to that party
has occurred and is continuing, pay interest (before as well as after judgment) on the overdue
amount to the other party on demand in the same currency as the overdue amount, for the
period from (and including) the date the party fails to make the payment due to the occurrence
of the relevant Illegality or Force Majeure Event (or, if later, the date the payment is no
longer deferred pursuant to Section 5(d)) to (but excluding) the earlier of the date the event
or circumstance giving rise to that Illegality or Force Majeure Event ceases to exist and the
date during the period upon which an Event of Default or Potential Event of Default with
respect to that party occurs (and excluding any period in respect of which interest or
compensation in respect of the overdue amount is due pursuant to clause (B) above), at the
Applicable Deferral Rate.
(4)
Compensation for Deferred Deliveries. If:?
(A)
been required to be settled by delivery;
a party does not perform any obligation that, but for Section 2(a)(iii), would have
(B)
a delivery is deferred pursuant to Section 5(d); or
(C)
Majeure Event at a time when any applicable Waiting Period has expired,
a party fails to make a delivery due to the occurrence of an Illegality or a Force
the party required (or that would otherwise have been required) to make the delivery will, to the
extent permitted by applicable law and subject to Section 6(c), compensate and pay interest to the
other party on demand (after, in the case of clauses (A) and (B) above, such delivery is required) if
and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.
Early Termination. Upon the occurrence or effective designation of an Early Termination Date in
(ii)
respect of a Transaction:?
Unpaid Amounts. For the purpose of determining an Unpaid Amount in respect of the relevant
(1)
Transaction, and to the extent permitted by applicable law, interest will accrue on the amount of any
payment obligation or the amount equal to the fair market value of any obligation required to be
settled by delivery included in such determination in the same currency as that amount, for the period
from (and including) the date the relevant obligation was (or would have been but for Section 2(a)
(iii) or 5(d)) required to have been performed to (but excluding) the relevant Early Termination Date,
at the Applicable Close-out Rate.
Interest on Early Termination Amounts. If an Early Termination Amount is due in respect
(2)
of such Early Termination Date, that amount will, to the extent permitted by applicable law, be paid
together with interest (before as well as after judgment) on that amount in the Termination Currency,
for the period from (and including) such Early Termination Date to (but excluding) the date the
amount is paid, at the Applicable Close-out Rate.
Interest Calculation. Any interest pursuant to this Section 9(h) will be calculated on the basis of
(iii)
daily compounding and the actual number of days elapsed.
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10.
Offices; Multibranch Parties
If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an
(a)
Office other than its head or home office represents to and agrees with the other party that, notwithstanding the place
of booking or its jurisdiction of incorporation or organisation, its obligations are the same in terms of recourse against
it as if it had entered into the Transaction through its head or home office, except that a party will not have recourse to
the head or home office of the other party in respect of any payment or delivery deferred pursuant to Section 5(d) for
so long as the payment or delivery is so deferred. This representation and agreement will be deemed to be repeated by
each party on each date on which the parties enter into a Transaction.
If a party is specified as a Multibranch Party in the Schedule, such party may, subject to clause (c) below, enter
(b)
into a Transaction through, book a Transaction in and make and receive payments and deliveries with respect to a
Transaction through any Office listed in respect of that party in the Schedule (but not any other Office unless otherwise
agreed by the parties in writing).
(c)
The Office through which a party enters into a Transaction will be the Office specified for that party in the
relevant Confirmation or as otherwise agreed by the parties in writing, and, if an Office for that party is not specified
in the Confirmation or otherwise agreed by the parties in writing, its head or home office. Unless the parties otherwise
agree in writing, the Office through which a party enters into a Transaction will also be the Office in which it books
the Transaction and the Office through which it makes and receives payments and deliveries with respect to the
Transaction. Subject to Section 6(b)(ii), neither party may change the Office in which it books the Transaction or the
Office through which it makes and receives payments or deliveries with respect to a Transaction without the prior
written consent of the other party.
11.
Expenses
A Defaulting Party will on demand indemnify and hold harmless the other party for and against all reasonable out-of-
pocket expenses, including legal fees, execution fees and Stamp Tax, incurred by such other party by reason of the
enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting
Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.
12.
Notices
Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner
(a)
described below (except that a notice or other communication under Section 5 or 6 may not be given by electronic
messaging system or e-mail) to the address or number or in accordance with the electronic messaging system or e-mail
details provided (see the Schedule) and will be deemed effective as indicated:?
(i)
if in writing and delivered in person or by courier, on the date it is delivered;
(ii)
if sent by telex, on the date the recipient’s answerback is received;
(iii)
if sent by facsimile transmission, on the date it is received by a responsible employee of the recipient
in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met
by a transmission report generated by the sender’s facsimile machine);
(iv)
on the date it is delivered or its delivery is attempted;
if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested),
(v)
if sent by electronic messaging system, on the date it is received; or
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(vi)
if sent by e-mail, on the date it is delivered,
unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that
communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business
Day, in which case that communication will be deemed given and effective on the first following day that is a Local
Business Day.
Change of Details. Either party may by notice to the other change the address, telex or facsimile number or
(b)
electronic messaging system or e-mail details at which notices or other communications are to be given to it.
13.
Governing Law and Jurisdiction
Governing Law. This Agreement will be governed by and construed in accordance with the law specified in
(a)
the Schedule.
Jurisdiction. With respect to any suit, action or proceedings relating to any dispute arising out of or in
(b)
connection with this Agreement (“Proceedings”), each party irrevocably:?
(i)
submits:?
(1)
if this Agreement is expressed to be governed by English law, to (A) the non-exclusive
jurisdiction of the English courts if the Proceedings do not involve a Convention Court and (B) the
exclusive jurisdiction of the English courts if the Proceedings do involve a Convention Court; or
(2)
if this Agreement is expressed to be governed by the laws of the State of New York, to the
non-exclusive jurisdiction of the courts of the State of New York and the United States District Court
located in the Borough of Manhattan in New York City;
(ii)
waives any objection which it may have at any time to the laying of venue of any Proceedings brought
in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction
over such party; and
(iii)
jurisdictions will not preclude the bringing of Proceedings in any other jurisdiction.
agrees, to the extent permitted by applicable law, that the bringing of Proceedings in any one or more
Service of Process. Each party irrevocably appoints the Process Agent, if any, specified opposite its name in
(c)
the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party’s
Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a
substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the
manner provided for notices in Section 12(a)(i), 12(a)(iii) or 12(a)(iv). Nothing in this Agreement will affect the right
of either party to serve process in any other manner permitted by applicable law.
Waiver of Immunities. Each party irrevocably waives, to the extent permitted by applicable law, with respect
(d)
to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty
or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction or order for specific
performance or recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution
or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in
the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim
any such immunity in any Proceedings.
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14.
Definitions
As used in this Agreement:?
“Additional Representation” has the meaning specified in Section 3.
“Additional Termination Event” has the meaning specified in Section 5(b).
“Affected Party” has the meaning specified in Section 5(b).
“Affected Transactions” means (a) with respect to any Termination Event consisting of an Illegality, Force Majeure
Event, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event
(which, in the case of an Illegality under Section 5(b)(i)(2) or a Force Majeure Event under Section 5(b)(ii)(2), means
all Transactions unless the relevant Credit Support Document references only certain Transactions, in which case those
Transactions and, if the relevant Credit Support Document constitutes a Confirmation for a Transaction, that Transaction)
and (b) with respect to any other Termination Event, all Transactions.
“Affiliate” means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the
person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common
control with the person. For this purpose, “control” of any entity or person means ownership of a majority of the voting
power of the entity or person.
“Agreement” has the meaning specified in Section 1(c).
“Applicable Close-out Rate” means:?
(a)
in respect of the determination of an Unpaid Amount:?
(i)
by a Defaulting Party, the Default Rate;
in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
(ii)
by a Non-defaulting Party, the Non-default Rate;
in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
(iii)
long as the deferral period continues, the Applicable Deferral Rate; and
in respect of obligations deferred pursuant to Section 5(d), if there is no Defaulting Party and for so
(iv)
pursuant to clause (iii) above), the Applicable Deferral Rate; and
in all other cases following the occurrence of a Termination Event (except where interest accrues
(b)
in respect of an Early Termination Amount:?
(i)
(determined in accordance with Section 6(d)(ii)) on which that amount is payable:?
for the period from (and including) the relevant Early Termination Date to (but excluding) the date
(1)
(2)
and
(3)
if the Early Termination Amount is payable by a Defaulting Party, the Default Rate;
if the Early Termination Amount is payable by a Non-defaulting Party, the Non-default Rate;
in all other cases, the Applicable Deferral Rate; and
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(ii)
that amount is payable to (but excluding) the date of actual payment:?
for the period from (and including) the date (determined in accordance with Section 6(d)(ii)) on which
(1)
if a party fails to pay the Early Termination Amount due to the occurrence of an event or
circumstance which would, if it occurred with respect to a payment or delivery under a Transaction,
constitute or give rise to an Illegality or a Force Majeure Event, and for so long as the Early Termination
Amount remains unpaid due to the continuing existence of such event or circumstance, the Applicable
Deferral Rate;
(2)
in respect of which clause (1) above applies), the Default Rate;
if the Early Termination Amount is payable by a Defaulting Party (but excluding any period
(3)
period in respect of which clause (1) above applies), the Non-default Rate; and
if the Early Termination Amount is payable by a Non-defaulting Party (but excluding any
(4)
in all other cases, the Termination Rate.
“Applicable Deferral Rate” means:?
for the purpose of Section 9(h)(i)(3)(A), the rate certified by the relevant payer to be a rate offered to the payer
(a)
by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be selected
in good faith by the payer for the purpose of obtaining a representative rate that will reasonably reflect conditions
prevailing at the time in that relevant market;
(b)
for purposes of Section 9(h)(i)(3)(B) and clause (a)(iii) of the definition of Applicable Close-out Rate, the rate
certified by the relevant payer to be a rate offered to prime banks by a major bank in a relevant interbank market for
overnight deposits in the applicable currency, such bank to be selected in good faith by the payer after consultation
with the other party, if practicable, for the purpose of obtaining a representative rate that will reasonably reflect conditions
prevailing at the time in that relevant market; and
(c)
for purposes of Section 9(h)(i)(3)(C) and clauses (a)(iv), (b)(i)(3) and (b)(ii)(1) of the definition of Applicable
Close-out Rate, a rate equal to the arithmetic mean of the rate determined pursuant to clause (a) above and a rate per
annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were
to fund or of funding the relevant amount.
“Automatic Early Termination” has the meaning specified in Section 6(a).
“Burdened Party” has the meaning specified in Section 5(b)(iv).
“Change in Tax Law” means the enactment, promulgation, execution or ratification of, or any change in or amendment
to, any law (or in the application or official interpretation of any law) that occurs after the parties enter into the relevant
Transaction.
“Close-out Amount” means, with respect to each Terminated Transaction or each group of Terminated Transactions
and a Determining Party, the amount of the losses or costs of the Determining Party that are or would be incurred under
then prevailing circumstances (expressed as a positive number) or gains of the Determining Party that are or would be
realised under then prevailing circumstances (expressed as a negative number) in replacing, or in providing for the
Determining Party the economic equivalent of, (a) the material terms of that Terminated Transaction or group of
Terminated Transactions, including the payments and deliveries by the parties under Section 2(a)(i) in respect of that
Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early
Termination Date, have been required after that date (assuming satisfaction of the conditions precedent in
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Section 2(a)(iii)) and (b) the option rights of the parties in respect of that Terminated Transaction or group of Terminated
Transactions.
Any Close-out Amount will be determined by the Determining Party (or its agent), which will act in good faith and
use commercially reasonable procedures in order to produce a commercially reasonable result. The Determining Party
may determine a Close-out Amount for any group of Terminated Transactions or any individual Terminated Transaction
but, in the aggregate, for not less than all Terminated Transactions. Each Close-out Amount will be determined as of
the Early Termination Date or, if that would not be commercially reasonable, as of the date or dates following the Early
Termination Date as would be commercially reasonable.
Unpaid Amounts in respect of a Terminated Transaction or group of Terminated Transactions and legal fees and out-
of-pocket expenses referred to in Section 11 are to be excluded in all determinations of Close-out Amounts.
In determining a Close-out Amount, the Determining Party may consider any relevant information, including, without
limitation, one or more of the following types of information: ?
(i)
quotations (either firm or indicative) for replacement transactions supplied by one or more third parties that
may take into account the creditworthiness of the Determining Party at the time the quotation is provided and the terms
of any relevant documentation, including credit support documentation, between the Determining Party and the third
party providing the quotation;
(ii)
information consisting of relevant market data in the relevant market supplied by one or more third parties
including, without limitation, relevant rates, prices, yields, yield curves, volatilities, spreads, correlations or other
relevant market data in the relevant market; or
(iii)
information of the types described in clause (i) or (ii) above from internal sources (including any of the
Determining Party’s Affiliates) if that information is of the same type used by the Determining Party in the regular
course of its business for the valuation of similar transactions.
The Determining Party will consider, taking into account the standards and procedures described in this definition,
quotations pursuant to clause (i) above or relevant market data pursuant to clause (ii) above unless the Determining
Party reasonably believes in good faith that such quotations or relevant market data are not readily available or would
produce a result that would not satisfy those standards. When considering information described in clause (i), (ii) or
(iii) above, the Determining Party may include costs of funding, to the extent costs of funding are not and would not
be a component of the other information being utilised. Third parties supplying quotations pursuant to clause (i) above
or market data pursuant to clause (ii) above may include, without limitation, dealers in the relevant markets, end-users
of the relevant product, information vendors, brokers and other sources of market information.
Without duplication of amounts calculated based on information described in clause (i), (ii) or (iii) above, or other
relevant information, and when it is commercially reasonable to do so, the Determining Party may in addition consider
in calculating a Close-out Amount any loss or cost incurred in connection with its terminating, liquidating or re-
establishing any hedge related to a Terminated Transaction or group of Terminated Transactions (or any gain resulting
from any of them).
Commercially reasonable procedures used in determining a Close-out Amount may include the following:?
(1)
application to relevant market data from third parties pursuant to clause (ii) above or information from internal
sources pursuant to clause (iii) above of pricing or other valuation models that are, at the time of the determination of
the Close-out Amount, used by the Determining Party in the regular course of its business in pricing or valuing
transactions between the Determining Party and unrelated third parties that are similar to the Terminated Transaction
or group of Terminated Transactions; and
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(2)
application of different valuation methods to Terminated Transactions or groups of Terminated Transactions
depending on the type, complexity, size or number of the Terminated Transactions or group of Terminated Transactions.
“Confirmation” has the meaning specified in the preamble.
“consent” includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control
consent.
“Contractual Currency” has the meaning specified in Section 8(a).
“Convention Court” means any court which is bound to apply to the Proceedings either Article 17 of the 1968 Brussels
Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters or Article 17 of the
1988 Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.
“Credit Event Upon Merger” has the meaning specified in Section 5(b).
“Credit Support Document” means any agreement or instrument that is specified as such in this Agreement.
“Credit Support Provider” has the meaning specified in the Schedule.
“Cross-Default” means the event specified in Section 5(a)(vi).
“Default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant
payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum.
“Defaulting Party” has the meaning specified in Section 6(a).
“Designated Event” has the meaning specified in Section 5(b)(v).
“Determining Party” means the party determining a Close-out Amount.
“Early Termination Amount” has the meaning specified in Section 6(e).
“Early Termination Date” means the date determined in accordance with Section 6(a) or 6(b)(iv).
“electronic messages” does not include e-mails but does include documents expressed in markup languages, and
“electronic messaging system” will be construed accordingly.
“English law” means the law of England and Wales, and “English” will be construed accordingly.
“Event of Default” has the meaning specified in Section 5(a) and, if applicable, in the Schedule.
“Force Majeure Event” has the meaning specified in Section 5(b).
“General Business Day” means a day on which commercial banks are open for general business (including dealings
in foreign exchange and foreign currency deposits).
“Illegality” has the meaning specified in Section 5(b).
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“Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this
Agreement but for a present or former connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation,
a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having
had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely
from such recipient or related person having executed, delivered, performed its obligations or received a payment under,
or enforced, this Agreement or a Credit Support Document).
“law” includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant
governmental revenue authority), and “unlawful” will be construed accordingly.
“Local Business Day” means (a) in relation to any obligation under Section 2(a)(i), a General Business Day in the
place or places specified in the relevant Confirmation and a day on which a relevant settlement system is open or
operating as specified in the relevant Confirmation or, if a place or a settlement system is not so specified, as otherwise
agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this
Agreement, (b) for the purpose of determining when a Waiting Period expires, a General Business Day in the place
where the event or circumstance that constitutes or gives rise to the Illegality or Force Majeure Event, as the case may
be, occurs, (c) in relation to any other payment, a General Business Day in the place where the relevant account is
located and, if different, in the principal financial centre, if any, of the currency of such payment and, if that currency
does not have a single recognised principal financial centre, a day on which the settlement system necessary to
accomplish such payment is open, (d) in relation to any notice or other communication, including notice contemplated
under Section 5(a)(i), a General Business Day (or a day that would have been a General Business Day but for the
occurrence of an event or circumstance which would, if it occurred with respect to payment, delivery or compliance
related to a Transaction, constitute or give rise to an Illegality or a Force Majeure Event) in the place specified in the
address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where
the relevant new account is to be located and (e) in relation to Section 5(a)(v)(2), a General Business Day in the relevant
locations for performance with respect to such Specified Transaction.
“Local Delivery Day” means, for purposes of Sections 5(a)(i) and 5(d), a day on which settlement systems necessary
to accomplish the relevant delivery are generally open for business so that the delivery is capable of being accomplished
in accordance with customary market practice, in the place specified in the relevant Confirmation or, if not so specified,
in a location as determined in accordance with customary market practice for the relevant delivery.
“Master Agreement” has the meaning specified in the preamble.
“Merger Without Assumption” means the event specified in Section 5(a)(viii).
“Multiple Transaction Payment Netting” has the meaning specified in Section 2(c).
“Non-affected Party” means, so long as there is only one Affected Party, the other party.
“Non-default Rate” means the rate certified by the Non-defaulting Party to be a rate offered to the Non-defaulting
Party by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be
selected in good faith by the Non-defaulting Party for the purpose of obtaining a representative rate that will reasonably
reflect conditions prevailing at the time in that relevant market.
“Non-defaulting Party” has the meaning specified in Section 6(a).
“Office” means a branch or office of a party, which may be such party’s head or home office.
“Other Amounts” has the meaning specified in Section 6(f).
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“Payee” has the meaning specified in Section 6(f).
“Payer” has the meaning specified in Section 6(f).
“Potential Event of Default” means any event which, with the giving of notice or the lapse of time or both, would
constitute an Event of Default.
“Proceedings” has the meaning specified in Section 13(b).
“Process Agent” has the meaning specified in the Schedule.
“rate of exchange” includes, without limitation, any premiums and costs of exchange payable in connection with the
purchase of or conversion into the Contractual Currency.
“Relevant Jurisdiction” means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised,
managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes
of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from
or through which such payment is made.
“Schedule” has the meaning specified in the preamble.
“Scheduled Settlement Date” means a date on which a payment or delivery is to be made under Section 2(a)(i) with
respect to a Transaction.
“Specified Entity” has the meaning specified in the Schedule.
“Specified Indebtedness” means, subject to the Schedule, any obligation (whether present or future, contingent or
otherwise, as principal or surety or otherwise) in respect of borrowed money.
“Specified Transaction” means, subject to the Schedule, (a) any transaction (including an agreement with respect to
any such transaction) now existing or hereafter entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any
Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is not a
Transaction under this Agreement but (i) which is a rate swap transaction, swap option, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond
option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency
swap transaction, cross-currency rate swap transaction, currency option, credit protection transaction, credit swap,
credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse
repurchase transaction, buy/sell-back transaction, securities lending transaction, weather index transaction or forward
purchase or sale of a security, commodity or other financial instrument or interest (including any option with respect
to any of these transactions) or (ii) which is a type of transaction that is similar to any transaction referred to in clause
(i) above that is currently, or in the future becomes, recurrently entered into in the financial markets (including terms
and conditions incorporated by reference in such agreement) and which is a forward, swap, future, option or other
derivative on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities
or other debt instruments, economic indices or measures of economic risk or value, or other benchmarks against which
payments or deliveries are to be made, (b) any combination of these transactions and (c) any other transaction identified
as a Specified Transaction in this Agreement or the relevant confirmation.
“Stamp Tax” means any stamp, registration, documentation or similar tax.
“Stamp Tax Jurisdiction” has the meaning specified in Section 4(e).
26
ISDA® 2002
“Tax” means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest,
penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar tax.
“Tax Event” has the meaning specified in Section 5(b).
“Tax Event Upon Merger” has the meaning specified in Section 5(b).
“Terminated Transactions” means, with respect to any Early Termination Date, (a) if resulting from an Illegality or a
Force Majeure Event, all Affected Transactions specified in the notice given pursuant to Section 6(b)(iv), (b) if resulting
from any other Termination Event, all Affected Transactions and (c) if resulting from an Event of Default, all Transactions
in effect either immediately before the effectiveness of the notice designating that Early Termination Date or, if Automatic
Early Termination applies, immediately before that Early Termination Date.
“Termination Currency” means (a) if a Termination Currency is specified in the Schedule and that currency is freely
available, that currency, and (b) otherwise, euro if this Agreement is expressed to be governed by English law or United
States Dollars if this Agreement is expressed to be governed by the laws of the State of New York.
“Termination Currency Equivalent” means, in respect of any amount denominated in the Termination Currency, such
Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination
Currency (the “Other Currency”), the amount in the Termination Currency determined by the party making the relevant
determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination
Date, or, if the relevant Close-out Amount is determined as of a later date, that later date, with the Termination Currency
at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase
of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange
agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other
Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise
will be agreed by the parties.
“Termination Event” means an Illegality, a Force Majeure Event, a Tax Event, a Tax Event Upon Merger or, if specified
to be applicable, a Credit Event Upon Merger or an Additional Termination Event.
“Termination Rate” means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of
any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts.
“Threshold Amount” means the amount, if any, specified as such in the Schedule.
“Transaction” has the meaning specified in the preamble.
“Unpaid Amounts” owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in
respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but
for Section 2(a)(iii) or due but for Section 5(d)) to such party under Section 2(a)(i) or 2(d)(i)(4) on or prior to such
Early Termination Date and which remain unpaid as at such Early Termination Date, (b) in respect of each Terminated
Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii) or 5
(d)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not
been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or
would have been) required to be delivered and (c) if the Early Termination Date results from an Event of Default,
a Credit Event Upon Merger or an Additional Termination Event in respect of which all outstanding Transactions
are Affected Transactions, any Early Termination Amount due prior to such Early Termination Date and which
remains unpaid as of such Early Termination Date, in each case together with any amount of interest accrued or
other
27
ISDA® 2002
compensation in respect of that obligation or deferred obligation, as the case may be, pursuant to Section 9(h)(ii)
(1) or (2), as appropriate. The fair market value of any obligation referred to in clause (b) above will be determined
as of the originally scheduled date for delivery, in good faith and using commercially reasonable procedures, by
the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it will be the average
of the Termination Currency Equivalents of the fair market values so determined by both parties.
“Waiting Period” means:?
(a)
in respect of an event or circumstance under Section 5(b)(i), other than in the case of Section 5(b)(i)(2) where
the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period
will apply), a period of three Local Business Days (or days that would have been Local Business Days but for the
occurrence of that event or circumstance) following the occurrence of that event or circumstance; and
(b)
in respect of an event or circumstance under Section 5(b)(ii), other than in the case of Section 5(b)(ii)(2) where
the relevant payment, delivery or compliance is actually required on the relevant day (in which case no Waiting Period
will apply), a period of eight Local Business Days (or days that would have been Local Business Days but for the
occurrence of that event or circumstance) following the occurrence of that event or circumstance.
IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect
from the date specified on the first page of this document.
FIFTH THIRD BANK
LKQ CORPORATION
(Name of Party)
(Name of Party)
By:
Name:
Title:
Date:
/s/ DONALD ZELLER
Donald Zeller
AVP
By:
Name:
Title:
Date:
/s/ JOHN S. QUINN
John S. Quinn
Executive Vice President & C.F.O.
28
ISDA® 2002
ISDA
International Swaps and Derivatives Association, Inc.
SCHEDULE
to the
2002 Master Agreement
dated as of May 15, 2013
between
FIFTH THIRD BANK,
an Ohio banking corporation,
(“Party A”)
and
LKQ CORPORATION,
a corporation organized and existing under the laws of Delaware,
(“Party B”)
Part 1
Termination Provisions
(a)
(b)
(c)
“Specified Entity” means in relation to Party A for the purpose of Sections 5(a)(v), 5(a)(vi), 5(a)(vii) and 5(b)
(v): none;
“Specified Entity” means in relation to Party B for the purpose of Sections 5(a)(v), 5(a)(vi), 5(a)(vii) and 5(b)
(v): none.
“Specified Transaction” will have the meaning specified in Section 14 but shall also include any transaction with
respect to margin loans, cash loans and short sales of any financial instrument, and as amended by inserting the
words, “or any Affiliate of Party A” immediately after “Agreement” in the second line thereof.
The “Cross-Default” provisions of Section 5(a)(vi):
will apply to Party A
and will apply to Party B.
In connection therewith, “Specified Indebtedness” will not have the meaning specified in Section 14, and such
definition shall be replaced by the following: “any obligation in respect of the payment or repayment of moneys
(whether present or future, contingent or otherwise, as principal or surety or otherwise), including, but without
limitation, any obligation in respect of borrowed money except that such term shall not include
obligations in respect of deposits received in the ordinary course of a party’s banking business.”
“Threshold Amount” means with respect to Party A an amount equal to three percent (3%) of the Shareholders’
Equity of Fifth Third Bancorp (“FTB”) and with respect to Party B, $75,000,000.
“Credit Agreement” means the Second Amended and Restated Credit Agreement dated as of March 25, 2011, as
amended and restated as of September 30, 2011, as further amended and restated as of May 3, 2013, among LKQ
Corporation and LKQ Delaware LLP, the Subsidiary Borrowers from time to time party thereto, the Lenders party
thereto from time to time, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America,
N.A., as Syndication Agent, and The Bank of Tokyo-Mitsubishi UFJ, Ltd. and RBS Citizens, N.A, as Co-
Documentation Agents, as amended, extended, supplemented, restated or otherwise modified in writing from time
to time.
“Shareholders’ Equity” means with respect to an entity, at any time, the sum (as shown in the most recent annual
audited financial statements of such entity) of (i) its capital stock (including preferred stock) outstanding, taken
at par value, (ii) its capital surplus and (iii) its retained earnings, minus (iv) treasury stock, each to be determined
in accordance with generally accepted accounting principles.
(d)
(e)
The “Credit Event Upon Merger” provisions of Section 5(b)(v):
will apply to Party A
will apply to Party B
The “Automatic Early Termination” provision of Section 6(a):
will not apply to Party A
will not apply to Party B.
(f)
“Termination Currency” means United States Dollars.
(g)
Additional Termination Event will apply.
It shall be an Additional Termination Event hereunder, with respect to which Party B shall be the sole Affected
Party, if (1) an Event of Default (as defined in the Credit Agreement) occurs under the Credit Agreement, or if
(2) the Credit Agreement shall be paid or prepaid in full, expire, terminate, or otherwise cease to be in full effect.
Part 2
Tax Representations
(a)
Payer Tax Representations. For the purpose of Section 3(e) of this Agreement, Party A and Party B will make
the following representation:-
It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority,
of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment
(other than interest under
Section 9(h) of this Agreement) to be made by it to the other party under this Agreement. In making this
representation, it may rely on (i) the accuracy of any representations made by the other party pursuant to Section
2
3(f) of this Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this
Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section
4(a)(i) or 4(a)(iii) of this Agreement and (iii) the satisfaction of the agreement of the other party contained in
Section 4(d) of this Agreement, except that it will not be a breach of this representation where reliance is placed
on clause (ii) above and the other party does not deliver a form or document under Section 4(a)(iii) by reason of
material prejudice to its legal or commercial position.
(b)
Payee Tax Representations. For the purpose of Section 3(f) of this Agreement, Party A and Party B will make
the following representations specified below, if any:-
(i) The following representations will apply to Party A:
Party A is a “U.S. person” (as that term is used in section 1.1441-4(a)(3)(ii) of United States Treasury
Regulations) for U.S. federal income tax purposes, and its U.S. tax identification number is 31-0676865.
(ii) The following representations will apply to Party B:
Party B is a corporation created or organized under the laws of the State of Delaware and the federal
taxpayer identification number is 36-4215970.
Part 3
Agreement to Deliver Documents
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the following documents:
(a)
Tax forms, documents or certificates to be delivered are:
Party required
to deliver
document
Document
Party B
Internal Revenue Service Form W-9
Date by which to be
delivered
Upon execution and
delivery of this
Agreement
3
(b)
Other documents to be delivered are:-
Form/Document/Certificate
Date by which to be
delivered
Covered by
Section 3(d)
Representation
Party required
to deliver
document
Party A and
Party B
Certified copies of all corporate,
partnership or membership authorizations,
as the case may be, and any other
documents with respect to the execution,
delivery and performance of this
Agreement and any Credit Support
Document
Upon execution and
delivery of this
Agreement
Party A and
Party B
Certificate of authority and specimen
signatures of individuals executing this
Agreement and any Credit Support
Document
Annual Report of FTB containing audited,
consolidated financial statements certified
by independent certified public accountants
and prepared in accordance with generally
accepted accounting principles in the
country in which such party is organized
Upon execution and
delivery of this
Agreement and
thereafter upon request
of the other party
To be made available
on www.53.com as
soon as available and
in any event within 90
days after the end of
each fiscal year of
Party A
Party A
Party A
Party B
Yes
Yes
Yes
Yes
Yes
Quarterly Financial Statements of FTB
containing unaudited, consolidated
financial statements of such party’s fiscal
quarter prepared in accordance with
generally accepted accounting principles in
the country in which such party is
organized
To be made available
on www.53.com as
soon as available and
in any event within 45
days after the end of
each fiscal quarter of
Party A
Annual Report of Party B and of any
Credit Support Provider thereof containing
audited, consolidated financial statements
certified by independent certified public
accountants and prepared in accordance
with generally accepted accounting
principles in the country in which such
party and such Credit Support Provider is
organized
To be made available
on www.lkqcorp.com
as soon as available
and in any event
within 90 days after
the end of each fiscal
year of Party B and of
the Credit Support
Provider
4
Party required
to deliver
document
Party B
Form/Document/Certificate
Date by which to be
delivered
Covered by
Section 3(d)
Representation
Quarterly Financial Statements of Party B
and any Credit Support Provider thereof
containing unaudited, consolidated
financial statements of such party’s fiscal
quarter prepared in accordance with
generally accepted accounting principles in
the country in which such party and such
Credit Support Provider is organized
Yes
To be made available
on www.lkqcorp.com
as soon as available
and in any event
within 45 days after
the end of each fiscal
quarter of Party B and
of the Credit Support
Provider
Part 4
Miscellaneous
(a)
Address for Notices. For the purpose of Section 12(a) of this Agreement:-
Address for notice or communications to Party A:
Address:
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202
Attention:
Treasury Department - MD1090QA
Telephone No.:
Facsimile No.:
513/579-6031
513/534-1894
with a copy to:
Address:
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202
Attention:
Legal Department - MD10AT76
Telephone No.:
Facsimile No.:
513/534-4500
513/534-6757
Address for notice or communications to Party B:
Address:
LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, IL 60661
Attention: Jack B. Brooks
Telephone No.:
Facsimile No.:
Email Address:
312/621-2774
866/669-2811
jbbrooks@lkqcorp.com
5
with a copy to:
Address:
LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, IL 60661
Attention: Victor Casini
Telephone No.:
Facsimile No.:
Email Address:
312/621-2754
312/280-3730
victorcasini@lkqccorp.com
(b)
Process Agent. For the purpose of Section 13(c):
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
(c)
Offices. The provisions of Section 10(a) will apply to this Agreement.
(d)
Multibranch Party. For the purpose of Section 10(b) of this Agreement:-
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e)
Calculation Agent. The Calculation Agent is Party A.
(f)
Credit Support Document. Details of any Credit Support Document:-
Each of the following, as amended, extended, supplemented or otherwise modified in writing from time to time,
is a “Credit Support Document”:
In relation to Party B, the Credit Agreement, and the Security Documents, or the Collateral Documents, as the
case may be, as defined in the Credit Agreement.
Party B agrees that the security interests in collateral granted to Party A under the foregoing Credit Support
Documents shall secure the obligations of Party B to Party A under this Agreement.
(g)
Credit Support Provider.
Credit Support Provider means in relation to party A: Not applicable.
Credit Support Provider means in relation to Party B: Subsidiary Borrowers and Subsidiary Guarantors, each as
defined in the Credit Agreement, excluding, however, any Subsidiary, as defined in the Credit Agreement, that
would become an Affected Foreign Subsidiary, as defined in the Credit Agreement, if it guaranteed or became
liable for, or granted any security interests to secure, the obligations under this Agreement or any Transaction.
6
(h)
(i)
Governing Law. This Agreement and any and all controversies arising out of or in relation to this Agreement
shall be governed by and construed in accordance with the laws of the State of New York (without reference to
its conflict of laws doctrine).
Netting of Payments. Section 2(c)(ii) of this Agreement shall apply; provided that either party may cause payments
due on the same day in the same currency (between the same Offices) but under different Transactions to be
discharged and replaced with a single, netted payment obligation by providing the other party with a written
statement detailing the calculation of such net amount payable not later than two Business Days prior to the
relevant due date.
(j)
“Affiliate” will have the meaning specified in Section 14 of this Agreement.
(k)
Absence of Litigation. For the purpose of Section 3(c):-
“Specified Entity” means in relation to Party A, none;
“Specified Entity” means in relation to Party B, none.
(l)
No Agency. The provisions of Section 3(g) will apply to this Agreement.
(m)
Additional Representation will apply. For the purpose of Section 3 of this Agreement, each of the following will
constitute an Additional Representation:-
(i)
Relationship Between Parties. Each party will be deemed to represent to the other party on the date
on which it enters into a Transaction that (absent a written agreement between the parties that
expressly imposes affirmative obligations to the contrary for that Transaction):-
(1)
Non-Reliance. It is acting for its own account, and, it has made its own independent decisions
to enter into that Transaction and as to whether that Transaction is appropriate or proper for it
based upon its own judgment and upon advice from such advisors as it has deemed necessary.
It is not relying on any communication (written or oral) of the other party as investment advice
or as a recommendation to enter into that Transaction, it being understood that information and
explanations related to the terms and conditions of a Transaction shall not be considered
investment advice or a recommendation to enter into that Transaction. No communication (written
or oral) received from the other party will be deemed to be an assurance or guarantee as to the
expected results of that Transaction.
(2)
Assessment and Understanding. It is capable of assessing the merits of and understanding (on
its own behalf or through independent professional advice), and understands and accepts, the
terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the
risks of that Transaction.
(3)
Status of Parties. The other party is not acting as a fiduciary for or an advisor to it in respect of
that Transaction.
7
(ii)
Each party makes the representations below (which representations will be deemed to be repeated by
each party on each date on which a Transaction is entered into):
(1)
(2)
Eligible Contract Participant. It is an “eligible contract participant” as defined in the U.S.
Commodity Exchange Act.
Line of Business. It has entered into this Agreement (including each Transaction evidenced
hereby) in conjunction with its line of business (including financial intermediation services) or
the financing of its business. It represents and warrants that all transactions effected under this
Agreement (a) will be appropriate in the conduct and management of its business, (b) will be
entered into for non-speculative purposes, and (c) as to Party B, Party B represents that all
Transactions effected under this Agreement constitute transactions entered into for purposes of
hedging or managing risks related to its assets or liabilities as currently owned or incurred, or
likely to be owned or incurred in the conduct of its business.
(n)
Recording of Conversations. Each party to this Agreement acknowledges and agrees to the recording of
conversations between trading and marketing personnel of the parties to this Agreement whether by one or other
or both of the parties or their agents.
Part 5
Other Provisions
(a)
Financial Statements. Section 3(d) is hereby amended by adding in the third line thereof after the word “respect”
and before the period:
(b)
(c)
“or, in the case of financial statements, a fair presentation of the financial condition of the relevant party.”
2002 Master Agreement Protocol. Annexes 1 to 18 and Section 6 of the ISDA 2002 Master Agreement Protocol
as published by the International Swaps and Derivatives Association, Inc. on July 15, 2003 are incorporated into
and apply to this Agreement. References in those definitions and provisions to any ISDA Master Agreement will
be deemed to be references to this Master Agreement.
WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY CREDIT SUPPORT DOCUMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
(d)
Method of Notice. Section 12(a)(ii) of the Master Agreement is deleted in its entirety.
(e)
Safe Harbors. Each party to this Agreement acknowledges that:
8
This Agreement, including any Credit Support Document, is a “master netting agreement” as defined in
(i)
the U.S. Bankruptcy Code (the “Code”), and a “netting contract” as defined in the netting provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), and this Agreement, including any Credit
Support Document, and each Transaction hereunder is of a type set forth in Section 561(a)(1)-(5) of the Code;
(ii)
Party A is a “master netting agreement participant,” a “financial institution,” a “financial participant,”‘ a
“forward contract merchant” and a “swap participant” as defined in the Code, and a “financial institution” as
defined in the netting provisions of FDICIA;
(iii)
The remedies provided herein, and in any Credit Support Document, are the remedies referred to in Section
561(a), Sections 362(b)(6), (7), (17) and (27), and Section 362(o) of the Code, and in Section 11(e)(8)(A) and
(C) of the Federal Deposit Insurance Act;
(iv)
All transfers of cash, securities or other property under or in connection with this Agreement, any Credit
Support Document or any Transaction hereunder are “margin payments,” “settlement payments” and “transfers”
under Sections 546(c), (f), (g) or (j), and under Section 548(d)(2) of the Code; and
(f)
(g)
(h)
(v)
Each obligation under this Agreement, any Credit Support Document or any Transaction hereunder is an
obligation to make a “margin payment,” “settlement payment” and “payment” within the meaning of Sections
362, 560 and 561 of the Code.
Hedge Agreement. Party B represents to Party A (which representation will be deemed to be repeated by Party
B on each date on which a Transaction is entered into) that this Agreement is a Hedge Agreement as defined in
the Credit Agreement.
Withholding Tax Imposed on Payments to Non-U.S. Counterparties under the United States Foreign Account
Tax Compliance Act. (a) For purposes of any Payer Tax Representation, the words “any Tax from any payment”
shall not include any tax imposed under Sections 1471 and 1472 of the Internal Revenue Code of 1986, as amended
(or the United States Treasury regulations or other guidance issued or any agreements entered into thereunder)
(“FATCA Withholding Tax”); (b) for the avoidance of doubt the parties agree that for purposes of Section 2(d)
of this Agreement the deduction or withholding of FATCA Withholding Tax is required by applicable law; and
(c) the definition of “Indemnifiable Tax” shall not include any FATCA Withholding Tax.
Confirmations. For each Transaction that Party A and Party B agree to enter into under this Agreement, Party A
shall use reasonable efforts to promptly send to Party B a Confirmation setting forth the terms of such Transaction
by facsimile or other electronic means. Unless Party B objects to the terms of a Transaction contained in any
Confirmation within three (3) Local Business Days of receipt thereof, the terms of such Confirmation shall be
deemed correct and accepted absent manifest error, unless a
9
corrected Confirmation is sent by Party A, within such three-day period, in which case Party B shall have two (2)
Local Business Days after receipt thereof to object to the terms contained in such corrected Confirmation.
(i)
Only ECPs Can Be Guarantors. Notwithstanding anything to the contrary in this Agreement or in any credit
agreement or guaranty, no person providing a guaranty of any obligation of Party B under this Agreement (each
such person, a “Guarantor”) shall be deemed to be a guarantor of, or to have granted a security interest to secure
any guaranty by Guarantor of, any Swap Obligation (as defined below) if such Guarantor is not an “Eligible
Contract Participant” as defined in the Commodity Exchange Act and the applicable rules and regulations issued
by the Commodity Futures Trading Commission and/or the Securities and Exchange Commission (collectively,
and as now or hereafter in effect, “the ECP Rules”) at the time Party B entered into any applicable Transaction
(each such Swap Obligation, an “Excluded Swap Obligation”), but solely to the extent that the providing of such
guaranty by such Guarantor, or grant of a security interest to secure any guaranty by Guarantor, of any Swap
Obligation by such Guarantor would violate the ECP Rules or other applicable law or regulation. Except as
expressly set forth in the preceding sentence, nothing in this Agreement shall be deemed to restrict, reduce or
waive any obligation of any such Guarantor under any guaranty or other Credit Support Document, and such
guaranty or other Credit Support Document shall continue to guarantee, or grant a security interest to secure, as
applicable, in accordance with its terms, each Swap Obligation that is not an Excluded Swap Obligation.
The term “Swap Obligation” means any obligation of any person to pay or perform under any Transaction that
constitutes a “swap” as defined in the Commodity Exchange Act.
(j)
USA PATRIOT Act Notice. Party A hereby notifies Party B that pursuant to the requirements of the USA Patriot
Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify
and record information that identifies Party B, which information includes the name and address of Party B and
other information that will allow Party A to identify Party B in accordance with the Act.
Part 6
Additional Terms for Foreign Exchange and Foreign Exchange Option Transactions
(a)
(b)
Incorporation of Definitions. The 1998 FX and Currency Option Definitions (the “FX Definitions”), published
by the International Swaps and Derivatives Association, Inc., the Emerging Markets Traders Association and The
Foreign Exchange Committee, are hereby incorporated by reference with respect to FX Transactions (as defined
in the FX Definitions) and Currency Option Transactions (as defined in the FX Definitions). Terms defined in
the FX Definitions shall have the same meanings in this Part 6.
Scope. Unless otherwise agreed in writing by the parties, each FX Transaction and Currency Option Transaction
entered into between the parties before, on or after the date of this Agreement shall be a Transaction under this
Agreement and shall be part of,
10
subject to and governed by this Agreement. FX Transactions and Currency Option Transactions shall be part of,
subject to and governed by this Agreement even if the Confirmation in respect thereof does not state that such
FX Transaction or Currency Option Transaction is subject to or governed by this Agreement or does not otherwise
reference this Agreement.
When an FX Transaction or a Currency Option is confirmed by means of exchange of electronic messages on an
electronic messaging system or other document or other confirming evidence exchanged between the parties
confirming such Transaction, such messages, document or evidence will constitute a Confirmation for the purposes
of this Agreement even where not so specified therein.
Premium Netting. If, on any date, and unless otherwise mutually agreed by the parties, Premiums would otherwise
be payable hereunder in the same Currency between the same respective offices of the parties, then, on such date,
each party’s obligation to make payment of such Premiums will be automatically satisfied and discharged and,
if the aggregate Premiums that would otherwise have been payable by such office of one party exceeds the
aggregate Premiums that would otherwise have been payable by such office of the other party, replaced by an
obligation upon the party by whom the larger aggregate Premiums would have been payable to pay the other party
the excess of the larger aggregate Premiums over the smaller aggregate Premiums, and if the aggregate Premiums
are equal, no payment shall be made.
Payment Netting of FX Transactions and Currency Option Transactions. Multiple Transaction Payment Netting
shall not apply to FX Transactions or Currency Option Transactions. Unless otherwise mutually agreed by the
parties, if on any date more than one delivery of a particular Currency is to be made between a pair of offices
with respect to settlement of FX Transactions or Currency Option Transactions (but excluding payments with
respect to option premiums and cash settled options), then each party shall aggregate the amounts of such Currency
deliverable by it and only the difference between these aggregate amounts shall be delivered by the party owing
the larger aggregate amount to the other party, and, if the aggregate amounts are equal, no delivery of the Currency
shall be made.
Potential Event of Default. Subject to Section 2(a)(iii) of the Agreement, if an Event of Default or Potential
Event of Default has occurred and is continuing, and an Early Termination Date has not been designated by the
Non-defaulting Party, the Non-defaulting Party may, by written notice, specify that any or all Currency Options
being settled while such Event of Default or Potential Event of Default is continuing shall be settled in accordance
with Article 3, Section 3.7 of the FX Definitions and upon such notice becoming effective, the Parties shall be
deemed to have elected to have the specified Currency Options settle at the In-the-Money Amount unless and
until the Event of Default or Potential Event of Default is no longer continuing.
(c)
(d)
(e)
(f)
Payment Instructions. All payments to be made hereunder in respect of FX and Currency Option Transactions
shall be made in accordance with standing payment
11
(g)
(h)
(i)
(a)
(b)
instructions provided by the parties from tune to time in writing (or as otherwise specified in a Confirmation).
Notice of Exercise. Article 3, Section 3.5(g) of the FX Definitions is amended by the deletion of the word
“facsimile,” in the fourth line thereof.
Automatic Exercise. Article 3, Section 3.6(c)(i), line six of the FX Definitions which currently reads “one percent
of the Strike Price” shall be amended to read “0.5% of the Strike Price,”
Terms Relating to Premium. Article 3, Section 3.4. of the FX Definitions is hereby amended by the addition of
the following as a new paragraph (c) of the FX Definitions.
Premium: Failure to Pay on Premium Payment Date. If any Premium is not received on the Premium
“(c)
Payment Date, the Seller may elect: (i) to accept a late payment of such Premium; (ii) to give written notice of
such non-payment and, if such payment shall not be received within two (2) Local Business Days of such notice,
treat the related Currency Option as void; or (iii) to give written notice of such non-payment and, if such payment
shall not be received within two (2) Local Business Days of such notice, treat such non-payment as an Event of
Default under Section 5(a)(i). If the Seller elects to act under either clause (i) or (ii) of the preceding sentence,
the Buyer shall pay all out-of-pocket costs and actual damages incurred in connection with such unpaid or late
Premium or void Currency Option, including, without limitation, interest on such Premium in the same currency
as such Premium at the then prevailing market rate and any other costs or expenses incurred by the Seller in
covering its obligations (including without limitation, a delta hedge) with respect to such currency Option.”
Part 7
Additional Provisions With Respect to Commodity Transactions
The “Disruption Fallbacks” specified in Section 7.5(d)(i) of the 2005 ISDA Commodity Definitions (published
by ISDA) (the “2005 Commodity Definitions”) shall apply, except as otherwise specified in the relevant
Confirmation.
The parties agree that notwithstanding Section 1(b) of this Agreement, in the event that a Confirmation references
the 1993 ISDA Commodity Derivatives Definitions (the “1993 Definitions”), the 2000 Supplement to the 1993
Definitions or the Commodity Definitions and such Confirmation does not otherwise specify Disruption Fallbacks,
the Disruption Fallbacks specified in Part 7(a) hereof shall apply to the Transaction for which such Confirmation
relates.
12
IN WITNESS WHEREOF, the parties have executed this Schedule by their duly authorized officers as of the date
hereof:
FIFTH THIRD BANK
LKQ CORPORATION
/s/ DONALD ZELLER
By:
Name: Donald Zeller
AVP
Title:
By:
Name:
Title:
/s/ JOHN S. QUINN
John S. Quinn
Executive Vice President & C.F.O.
13
Exhibit 10.40
Execution Copy
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KEYSTONE AUTOMOTIVE HOLDINGS, INC.,
LKQ CORPORATION,
KAH ACQUISITION SUB, INC.,
CERTAIN STOCKHOLDERS OF KEYSTONE AUTOMOTIVE HOLDINGS,
INC.,
AND
THE EQUITYHOLDERS REPRESENTATIVE
DATED AS OF DECEMBER 5, 2013
ARTICLE I THE MERGER .........................................................................................................
1.1. The Merger ...................................................................................................................
1.2. Closing ..........................................................................................................................
1.3. Effective Time...............................................................................................................
1.4. Effects of the Merger ....................................................................................................
1.5. Certificate of Incorporation and Bylaws.......................................................................
1.6. Directors and Officers...................................................................................................
ARTICLE II EFFECT OF THE MERGER; MERGER CONSIDERATION...............................
2.1. Conversion of Company Shares ...................................................................................
2.2. Dissenting Shares..........................................................................................................
2.3. Treatment of Stock Options; Restricted Stock; and Restricted Stock Units.................
2.4. Payments to the Equityholders .....................................................................................
2.5. Other Payments by Parent at Closing ...........................................................................
2.6. Closing Net Working Capital and Net Closing Cash Adjustments...............................
2.7. Representative Holdback Amount and WC Estimated Surplus....................................
2.8. Tax Withholding ...........................................................................................................
2.9. Tax Deductions .............................................................................................................
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING THE
COMPANY......................................................................................................
3.1. Organization and Qualification of the Company..........................................................
3.2. Organization and Qualification of Subsidiaries............................................................
3.3. Capitalization ................................................................................................................
3.4. Authority.......................................................................................................................
3.5. No Conflict ...................................................................................................................
3.6. Consents; Stockholder Approval ..................................................................................
3.7. Financial Statements .....................................................................................................
3.8. No Undisclosed Liabilities............................................................................................
3.9. Absence of Certain Changes.........................................................................................
3.10. Assets and Properties ....................................................................................................
3.11. Real Property; Real Property Leases ............................................................................
3.12. Intellectual Property......................................................................................................
3.13. Contracts .......................................................................................................................
3.14. Litigation.......................................................................................................................
3.15. Compliance with Laws; Permits ...................................................................................
3.16. Insurance.......................................................................................................................
3.17. Environmental Matters .................................................................................................
3.18. Employment Matters.....................................................................................................
3.19. Employment Benefit Plans ...........................................................................................
3.20. Taxes.............................................................................................................................
3.21. Ownership of Assets .....................................................................................................
CI-9382152 v14
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3.22. Customers; Suppliers ....................................................................................................
3.23. Bank Accounts; Powers of Attorney.............................................................................
3.24. Interested Party Transactions........................................................................................
3.25. Brokers' and Finders' Fees ............................................................................................
3.26. No Other Representations.............................................................................................
ARTICLE IV REPRESENTATIONS AND WARRANTS OF THE STOCKHOLDER
PARTIES ..........................................................................................................
4.1. Organization and Qualification of Stockholder Party...................................................
4.2. Ownership.....................................................................................................................
4.3. Authority.......................................................................................................................
4.4. No Conflict ...................................................................................................................
4.5. No Legal Actions ..........................................................................................................
4.6. Brokers' and Finders' Fees ............................................................................................
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB ................................................................................................
5.1. Organization of Parent and Merger Sub .......................................................................
5.2. Authority.......................................................................................................................
5.3. No Conflict ...................................................................................................................
5.4. Consents; Stockholder Approval ..................................................................................
5.5. No Legal Actions ..........................................................................................................
5.6. Ownership and Activities of Merger Sub .....................................................................
5.7. Financing ......................................................................................................................
5.8. Solvency........................................................................................................................
5.9. Acknowledgment ..........................................................................................................
5.10. Brokers' and Finders' Fees ............................................................................................
5.11. No Other Representations.............................................................................................
ARTICLE VI COVENANTS........................................................................................................
6.1. Conduct of Business .....................................................................................................
6.2. Access to Information; Confidentiality.........................................................................
6.3. Satisfaction of Closing Conditions; Regulatory Matters ..............................................
6.4. Indemnification of Officers and Directors....................................................................
6.5. Employees; Benefit Plans .............................................................................................
6.6. Preservation of Records ................................................................................................
6.7. Outstanding Letters of Credit .......................................................................................
6.8. Director Resignations ...................................................................................................
6.9. Notice of Certain Events...............................................................................................
6.1. No Solicitation of Other Bids .......................................................................................
6.11. Employee Non-Solicit...................................................................................................
6.12. Transfer of Common Stock; Voting; Company Stockholder Approval........................
6.13. Bonus Payments............................................................................................................
6.14. NTP Payments ..............................................................................................................
6.15. Access to Assets............................................................................................................
6.16. Section 280G of the Code.............................................................................................
6.17. Transfer of Title ............................................................................................................
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6.18. Closing Bank Debt........................................................................................................
6.19. Stockholder Termination of Agreements......................................................................
6.20. Further Assurances........................................................................................................
ARTICLE VII CONDITIONS PRECEDENT TO THE CLOSING.............................................
7.1. Conditions to Each Party's Obligations ........................................................................
7.2. Conditions to the Obligation of Parent and Merger Sub ..............................................
7.3. Conditions to the Obligation of the Company ..............................................................
ARTICLE VIII TERMINATION..................................................................................................
8.1. Termination...................................................................................................................
8.2. Effect of Termination....................................................................................................
ARTICLE IX INDEMNIFICATION ............................................................................................
9.1. Survival of Representations and Warranties.................................................................
9.2. Indemnification.............................................................................................................
9.3. Limitations ....................................................................................................................
9.4. Procedures.....................................................................................................................
9.5. Third Party Claims........................................................................................................
9.6. Purchase Price Adjustments..........................................................................................
9.7. Fraud and Willful Misconduct......................................................................................
ARTICLE X TAX MATTERS......................................................................................................
10.1. Tax Indemnity...............................................................................................................
10.2. Responsibility for Filing Tax Returns...........................................................................
10.3. Tax Contests..................................................................................................................
10.4. Assistance and Cooperation..........................................................................................
10.5. Transfer Taxes...............................................................................................................
10.6. Treatment of Payments .................................................................................................
ARTICLE XI DEFINITIONS; CONSTRUCTION ......................................................................
11.1. Definitions ....................................................................................................................
11.2. Construction..................................................................................................................
ARTICLE XII GENERAL PROVISIONS....................................................................................
12.1. Equityholders Representative; Power of Attorney........................................................
12.2. Expenses .......................................................................................................................
12.3. Public Announcements .................................................................................................
12.4. Notices ..........................................................................................................................
12.5. Entire Agreement..........................................................................................................
12.6. Severability ...................................................................................................................
12.7. Specific Performance....................................................................................................
12.8. Successors and Assigns; Assignment; Parties in Interest..............................................
12.9. Amendment; Waiver.....................................................................................................
12.10. Governing Law; Venue.................................................................................................
12.11. Waiver of Jury Trial......................................................................................................
12.12. Other Remedies.............................................................................................................
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12.13. Counterparts; Electronic Delivery ................................................................................
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Exhibit
Exhibit A
Exhibit B
Form of Promissory Note
Form of Mortgage
CI-9382152 v14
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of December 5, 2013 (this “Agreement”), is
entered into by and among Keystone Automotive Holdings, Inc., a Delaware corporation (the
“Company”), LKQ Corporation, a Delaware corporation (“Parent”), KAH Acquisition Sub, Inc., a
Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), the undersigned
stockholders of the Company (the “Stockholder Parties”), and Sphere Capital, LLC - Series A, a
Delaware limited liability company, in its capacity as the representative of the Equityholders (the
“Equityholders Representative”). (Unless the context otherwise makes clear, capitalized terms used
in this Agreement are defined in ARTICLE XI.)
BACKGROUND
A.
This Agreement constitutes an agreement of merger, as such term is used in Section
251(b) of the General Corporation Law of the State of Delaware (the “DGCL”), providing for the
merger of Merger Sub with and into the Company with the Company continuing as the surviving
corporation (the “Merger”) in accordance with the terms and conditions of this Agreement and the
DGCL, whereby each issued and outstanding share of capital stock of the Company will be converted
into the right to receive the Per Share Merger Consideration.
B.
A special committee of the Board of Directors of the Company (the “Board”) has
unanimously recommended that the Board approve this Agreement and declare its advisability to
the Company and the Stockholders.
C.
The Board has unanimously adopted resolutions (i) approving this Agreement and
declaring its advisability, (ii) approving the transactions contemplated hereby, including the Merger,
(iii) determining that the terms of the Merger and the other transactions contemplated hereby are
fair to, advisable and in the best interests of, the Company and the Stockholders, (iv) directing that
this Agreement be submitted to the Stockholders for consideration for adoption or rejection and (v)
recommending that the Stockholders adopt this Agreement.
D.
The boards of directors of both Parent and Merger Sub have each unanimously
adopted resolutions approving and declaring advisable this Agreement and the transactions
contemplated hereby, including the Merger, and authorizing Parent and Merger Sub to enter into
this Agreement and to consummate the Merger.
E.
The Company, Parent and Merger Sub desire to make certain representations,
warranties and agreements in connection with the Merger and the other transactions contemplated
hereby and prescribe various conditions to the Merger as provided herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual representations,
warranties and agreements contained herein, the Parties hereby agree as follows:
1
ARTICLE I
THE MERGER
1.1.
The Merger. At the Effective Time, and subject to and on the terms and conditions of this
Agreement and the provisions of the DGCL, the Company and Merger Sub shall consummate the Merger
pursuant to which: (a) Merger Sub shall be merged with and into the Company, the separate existence of
Merger Sub shall cease, (b) the Company shall continue as the surviving corporation in the Merger (the
“Surviving Corporation”) and shall continue to be governed by the applicable Laws of the State of Delaware,
and (c) the separate corporate existence of the Company with all its properties, rights, privileges, powers,
franchises and immunities, shall continue unaffected by the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL.
1.2.
Closing. The closing (the “Closing”) of the Merger shall take place as promptly as
practicable, but no later than three (3) Business Days, following the satisfaction or waiver of the conditions
set forth in ARTICLE VII (other than conditions that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or waiver of such conditions) at the offices of K&L Gates LLP, 70 West Madison
Street, Chicago, Illinois or on such other date or place as shall be agreed in writing between the Company
and Parent; provided that the Closing shall not take place earlier than January 3, 2014. The date on which
the Closing occurs is referred to in this Agreement as the “Closing Date.”
1.3.
Effective Time. On the Closing Date, the Parties shall file with the Delaware Secretary of
State a certificate of merger (the “Certificate of Merger”) duly executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or recordings required under the DGCL to give full
effect to the Merger. The Merger shall become effective at such time as the Certificate of Merger is duly
filed with the Delaware Secretary of State, or at such later date and time as Parent and the Company shall
agree and specify in the Certificate of Merger (the “Effective Time”).
1.4.
Effects of the Merger. The Merger shall have the effects provided in this Agreement and in
the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all of the properties, rights, privileges, powers, franchises and immunities of the
Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.
1.5.
Certificate of Incorporation and Bylaws. At the Effective Time, (a) the certificate of
incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by
Applicable Law, except that the name of the Surviving Corporation shall continue to be Keystone Automotive
Holdings, Inc. until amended in accordance with Applicable Law and (b) the bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter
changed or amended as provided therein or by Applicable Law, except that the name of the Surviving
Corporation shall continue to be Keystone Automotive Holdings, Inc. until amended in accordance with
Applicable Law.
2
1.6.
Directors and Officers. The members of the board of directors of Merger Sub immediately
prior to the Effective Time shall become the initial directors of the Surviving Corporation at the Effective
Time, and the officers of Merger Sub immediately prior to the Effective Time shall become the initial officers
of the Surviving Corporation at the Effective Time, in each case to hold office until their respective successors
shall have been duly elected, designated or qualified, or until their earlier death, resignation or removal in
accordance with the certificate of incorporation and bylaws of the Surviving Corporation. The officers of
the Company immediately prior to the Effective Time shall cease to be officers of the Company at the
Effective Time.
ARTICLE II
EFFECT OF THE MERGER; MERGER CONSIDERATION
2.1.
Conversion of Company Shares. At the Effective Time, by virtue of the Merger and without
any action on the part of the Company or Merger Sub or on the part of any other Person:
(a)
Except as otherwise provided in Section 2.1(b) and Section 2.2, each share of
Common Stock issued and outstanding immediately prior to the Effective Time shall be converted
automatically into and thereafter represent solely the right to receive the Initial Per Share Merger
Consideration and the Subsequent Payments to be made with respect thereto as provided in Section 2.4(f)
(all such amounts, taken together, the “Per Share Merger Consideration”). From and after the Effective
Time, all such shares of Common Stock shall no longer be outstanding and shall automatically be cancelled
and shall cease to exist, and each holder of a certificate formerly representing any such shares shall cease to
have any rights with respect thereto, except the right to receive the Per Share Merger Consideration.
(b)
Each share of Common Stock held in the treasury of the Company and each share
of Common Stock owned by Parent, or by any other direct or indirect wholly owned subsidiary of Parent,
immediately prior to the Effective Time, shall be automatically canceled and retired and shall cease to exist
and no payment or other consideration shall be made with respect thereto.
(c)
Each share of common stock, par value $0.01 per share, of Merger Sub that is issued
and outstanding immediately prior to the Effective Time shall be converted automatically into and become
one share of common stock, par value $0.01 per share, of the Surviving Corporation, so that, at the Effective
Time, Parent shall be the holder of all of the issued and outstanding shares of the Surviving Corporation’s
common stock.
2.2.
Dissenting Shares. Shares of Common Stock outstanding immediately prior to the Effective
Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who
has demanded appraisal for such shares in accordance with the DGCL (“Dissenting Shares”) shall not be
converted into a right to receive the Per Share Merger Consideration but instead shall be entitled to receive
the fair value of such shares of Common Stock as may be determined to be due with respect to such Dissenting
Shares pursuant to Section 262 of the DGCL (and at the Effective Time, such Dissenting Shares shall no
longer be outstanding and shall automatically be cancelled and shall cease to exist and such holder shall
3
cease to have any rights with respect thereto except the rights set forth in Section 262 of the DGCL), unless
and until such holder fails to perfect, withdraws or otherwise loses such holder’s right to appraisal under the
DGCL. If, after the Effective Time, such holder fails to perfect, withdraws or otherwise loses such holder’s
right to appraisal, each such share of Common Stock shall be treated as if it had been converted at the
Effective Time into the right to receive the Per Share Merger Consideration as and when provided in Section
2.1(a), without any interest thereon. The Company shall give Parent (a) prompt notice of (i) any demands
for appraisal pursuant to the DGCL received by the Company, but in any event not later than one (1) day
after such demand is received by the Company, (ii) withdrawals of such demands, and (iii) any other
instruments served pursuant to the DGCL and received by the Company in connection with such demands,
and (b) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal
under the DGCL prior to the Effective Time. The Company shall not, except with the prior written consent
of Parent or as otherwise required by Applicable Law, make any payment with respect to any such demands
for appraisal or offer to settle or settle any such demands without Parent’s prior written consent.
2.3.
Treatment of Stock Options; Restricted Stock; and Restricted Stock Units.
(a)
Treatment of Stock Options. Prior to the Effective Time, the Company shall cause
each Stock Option that has not expired and is outstanding immediately prior to the Effective Time to become
or otherwise be deemed fully vested at such time and to be canceled and converted at the Effective Time
into the right to receive payment of the Initial Stock Option Cancellation Payment and the Subsequent
Payments to be made with respect thereto as provided in Section 2.4(f).
(b)
Treatment of Restricted Stock. Prior to the Effective Time, the Company shall cause
each share of Restricted Stock that is unvested and outstanding immediately prior to the Effective Time to
become or otherwise be deemed fully vested Common Stock at such time and, accordingly, each such share
shall be converted automatically into and thereafter represent solely the right to receive the Initial Per Share
Merger Consideration and the Subsequent Payments with respect thereto as provided in Section 2.4(f).
(c)
Treatment of Restricted Stock Units. Prior to the Effective Time, the Company
shall cause each Restricted Stock Unit that is unvested and outstanding immediately prior to the Effective
Time to become or otherwise be deemed fully vested at such time and to be canceled and converted at the
Effective Time into the right to receive payment of the Initial Per Share Merger Consideration and the
Subsequent Payments with respect thereto as provided in Section 2.4(f).
(d)
Company Equity Incentive Plan. After the Effective Time, the Company Equity
Incentive Plan shall be terminated and no further Stock Options, shares of Restricted Stock, Restricted Stock
Units, or other rights with respect to Common Stock shall be granted thereunder.
4
2.4.
Payments to the Equityholders.
(a)
Prior to the Closing Date, the Company shall distribute to each Stockholder of record
(including holders of Restricted Stock) a customary letter of transmittal in form and substance reasonably
satisfactory to Parent (the “Letter of Transmittal”) for use in surrendering the Certificates evidencing the
shares of Common Stock held by such Stockholder (or in lieu thereof an Affidavit of Loss as provided in
Section 2.4(d)) in exchange for the payments provided for in this Agreement.
(b)
Each Stockholder who has, prior to the Effective Time, properly completed,
executed and delivered to the Company a Letter of Transmittal and the Certificate(s) evidencing such
Stockholder’s shares of Common Stock (or an Affidavit of Loss in lieu thereof) shall be entitled to receive
from Parent on the Closing Date, and Parent shall pay to such Stockholder on the Closing Date, an amount
equal to the Initial Per Share Merger Consideration multiplied by the number of shares of Common Stock
represented by the Certificate surrendered (or referred to in the Affidavit of Loss delivered in lieu thereof),
such payments to be made by check or by wire transfer as requested by such Stockholder in the Letter of
Transmittal delivered by such Stockholder; provided, however, that with respect to the holders of Restricted
Stock immediately prior to the Effective Time, such payments shall be made through the Company’s or its
applicable Subsidiary’s payroll account as provided in Section 2.4(e).
(c)
With respect to any Stockholder who has not properly completed, executed and
delivered a Letter of Transmittal to the Company prior to the Effective Time, or who has failed to deliver
the Certificate(s) evidencing such Stockholder’s shares of Common Stock (or an Affidavit of Loss in lieu
thereof), Parent shall pay to the Equityholders Representative at the Closing an amount equal to the Initial
Per Share Merger Consideration multiplied by the total number of shares of Common Stock held by all such
Stockholders (other than Dissenting Shares), such funds to be held by the Equityholders Representative
(subject to applicable abandoned property, escheat and similar Laws) for further payment to each such
Stockholder when and as such Stockholder delivers a properly completed and executed Letter of Transmittal
and the Certificate(s) evidencing such Stockholder’s shares of Common Stock (or an Affidavit of Loss in
lieu thereof) to the Equityholders Representative (who shall promptly thereafter deliver such documents to
Parent), at which time such Stockholder shall be entitled to receive from the funds held by the Equityholders
Representative the same amount (payable in the same manner, except with respect to shares of Restricted
Stock, which shall be payable as provided in Section 2.4(e)) as such Stockholder would have received from
Parent under Section 2.4(b) if such Letter of Transmittal and Certificate(s) (or Affidavit of Loss in lieu
thereof) had been delivered to the Company prior to the Effective Time.
(d)
If any Certificate which formerly represented shares of Common Stock held by any
Stockholder shall have been lost, stolen or destroyed, such Stockholder may, in lieu of delivering such
Certificate with the Letter of Transmittal delivered in accordance with Section 2.4(b) or Section 2.4(c),
complete, execute and deliver an affidavit of loss in form reasonably satisfactory to Parent, including
customary indemnity provisions (an “Affidavit of Loss”).
(e)
As soon as reasonably practicable after the Effective Time, but in any event not later
than the first regular payroll that occurs not earlier than three (3) Business Days
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following the Effective Time, the Surviving Corporation shall pay through the Company’s or its applicable
Subsidiary’s payroll account, in accordance with its regular payroll practices (and subject to all applicable
payroll Taxes and withholding Taxes) to (i) each former holder of a Stock Option who has delivered an
Option Consent Agreement, the Initial Stock Option Cancellation Payment, (ii) each holder of Restricted
Stock, the portion of the Unpaid Class B Dividends specified by the Company not less than three (3) Business
Days prior to the Closing Date, (iii) each applicable Employee, the amount of Transaction Expenses specified
by the Company for such Employee not less than three (3) Business Days prior to the Closing Date, and (iv)
each former holder of shares of Restricted Stock and each former holder of Restricted Stock Units who has
delivered a Restricted Stock Unit Consent Agreement an amount in cash equal to the Initial Per Share Merger
Consideration multiplied by the number of outstanding shares of Restricted Stock (or number of Restricted
Stock Units) held by such holder of Restricted Stock (or Restricted Stock Units) immediately prior to the
Effective Time. The Company has accrued, or shall prior to the Closing accrue, all applicable employer
payroll Taxes and withholding Taxes payable by the Company in connection with the cash distributions set
forth in clauses (i) through (iv) of this Section 2.4(e).
(f)
In addition to the payments to be made to the Equityholders as provided above, the
Equityholders shall also be entitled to receive, subject to Section 12.1(b), the Subsequent Payments from
the Equityholders Representative in accordance with their respective Equity Ownership Percentages. The
foregoing notwithstanding, to the extent required by applicable Law, the Surviving Corporation shall, upon
request of the Equityholders Representative, facilitate the payment of any Subsequent Payments to be made
to former holders of Stock Options, shares of Restricted Stock and Restricted Stock Units, through its or its
applicable Subsidiary’s payroll account, subject to all applicable payroll Taxes and withholding Taxes, in
which case, the Equityholders Representative shall reimburse the Surviving Corporation for the employer
portion of any applicable payroll Taxes in connection with the foregoing payments.
(g)
In no event shall any Equityholder be entitled to receive interest on any of the funds
to be received in connection with the Merger.
2.5.
Other Payments by Parent at Closing. On the Closing Date, Parent shall deliver the executed
Promissory Note to the Equityholders Representative and shall make the following payments by wire transfer
of immediately available funds:
(a)
on the Company’s behalf, to the appropriate third parties the aggregate amount
necessary to repay in full all Closing Bank Debt as set forth in the Payoff Letters, such payments to be
remitted to the accounts and in the amounts specified in the Payoff Letters;
(b)
on the Company’s behalf, to the appropriate third parties, the aggregate amount
necessary to pay the Transaction Expenses (other than Transaction Expenses payable to Employees) that
shall have been determined as of the Closing, such payments to be remitted to the accounts and in the amounts
specified by the Company not less than three (3) Business Days prior to the Closing Date;
6
(c)
to the Equityholders Representative, the Representative Holdback Amount and, if
applicable, the WC Estimated Surplus, such payments to be remitted to an account or accounts specified by
the Equityholders Representative not less than three (3) Business Days prior to the Closing Date; and
(d)
(A) to the Company, for the benefit of and disbursement to the Option Holders, the
aggregate amount of the Initial Stock Option Cancellation Payments, such payment to be remitted to the
Company’s or its applicable Subsidiary’s payroll account for further payment to the Option Holders pursuant
to Section 2.4(e), (B) to the Company, for the benefit of and disbursement to the holders of Restricted Stock,
the aggregate amount of the Unpaid Class B Dividends, such payment to be remitted to the Company’s or
its applicable Subsidiary’s payroll account for further payment to such Equityholders pursuant to Section
2.4(e), (C) to the Company, for the benefit of and disbursement to the applicable Employees, the aggregate
amount of Transaction Expenses payable to such Employees, such payment to be remitted to the Company’s
or its applicable Subsidiary’s payroll account for further payment to such Employees pursuant to Section
2.4(e), (D) to the Company, for the benefit of and disbursement to the holders of Restricted Stock, the
aggregate amount equal to the Initial Per Share Merger Consideration multiplied by the number of outstanding
shares of Restricted Stock held by such holder of Restricted Stock immediately prior to the Effective Time,
such payment to be remitted to the Company’s or its applicable Subsidiary’s payroll account for further
payment to the holders of Restricted Stock pursuant to Section 2.4(e), (E) to the Company, for the benefit
of and disbursement to the holders of Restricted Stock Units, the aggregate amount equal to the Initial Per
Share Merger Consideration multiplied by the number of outstanding Restricted Stock Units held by such
holders of Restricted Stock Units immediately prior to the Effective Time, such payment to be remitted to
the Company’s or its applicable Subsidiary’s payroll account for further payment to the holders of Restricted
Stock Units pursuant to Section 2.4(e), and (F) to the Company for disbursement to the applicable
Governmental Entity, all withholding Taxes with respect to the Initial Stock Option Cancellation Payments,
the Unpaid Class B Dividends, the Transaction Expenses payable to Employees, and the payments to the
holders of Restricted Stock and Restricted Stock Units.
2.6.
Closing Net Working Capital and Net Closing Cash Adjustments.
(a)
No less than four (4) Business Days prior to the anticipated Closing Date, the
Company shall prepare and deliver to Parent a statement (the “Estimated Statement”), duly executed by the
Chief Financial Officer of the Company, setting forth in reasonable detail the Company’s good faith estimate
of the Closing Net Working Capital as of the anticipated Closing Date (the “Estimated Closing Net Working
Capital”) and of the Net Closing Cash as of the anticipated Closing Date (the “Estimated Closing Cash”).
The Estimated Statement shall be based on the books and records of the Company and its Subsidiaries, and
shall be prepared in good faith and in accordance with the Accounting Conventions.
(b) Within seventy-five (75) days after the Closing Date, Parent shall prepare and deliver
to the Equityholders Representative a statement (the “Closing Statement”) setting forth Parent’s
determination of Closing Net Working Capital and Net Closing Cash showing in reasonable detail any and
all changes reflected therein from the amounts reflected in the Estimated Statement of Estimated Closing
Net Working Capital and Estimated Closing Cash
7
delivered pursuant to Section 2.6(a). The Closing Statement shall be based on the books and records of the
Company and its Subsidiaries and shall be prepared in good faith and in accordance with the Accounting
Conventions.
(c)
The Closing Statement shall be final and binding on the Parties unless the
Equityholders Representative, on behalf of the Equityholders, delivers to Parent a written notice of
disagreement with the Closing Statement within seventy-five (75) days following the receipt thereof. Such
written notice shall describe the nature of any such disagreement in reasonable detail, identifying the specific
items as to which the Equityholders Representative disagrees and shall be accompanied by reasonable
supporting documentation. During such seventy-five (75) day period, Parent shall cause the Surviving
Corporation and its Subsidiaries to provide the Equityholders Representative and the Equityholders
Representative’s advisors with on-site access and access via telephone and e-mail communications and
transmissions during regular business hours and upon reasonable notice to all relevant books and records
and employees (including key accounting and finance personnel) of the Surviving Corporation and its
Subsidiaries to the extent necessary to review the matters and information used to prepare and to support
the Closing Statement, all in a manner not unreasonably interfering with the business of the Surviving
Corporation and its Subsidiaries and if and to the extent that such access is requested but not provided, such
seventy-five (75) day review period shall be extended on a day-for-day basis for each full day that such
access is requested but not provided. If the Equityholders Representative delivers a notice of disagreement
in a timely manner, then the Equityholders Representative, on behalf of the Equityholders, and Parent shall
attempt to resolve all such matters identified in such notice. If the Equityholders Representative and Parent
are unable to resolve all such disagreements within thirty (30) days after the receipt by Parent of the notice
of disagreement (or such longer period as may be agreed by Parent and the Equityholders Representative),
then the remaining disputed matters shall be promptly submitted to the Accounting Arbitrator for binding
resolution, and the Accounting Arbitrator shall be directed by Parent and the Equityholders Representative
to resolve the unresolved objections as promptly as reasonably practicable. The Accounting Arbitrator will
consider only those items and amounts set forth on the Closing Statement as to which Parent and the
Equityholders Representative have disagreed and shall resolve such disagreements in accordance with the
terms and provisions of this Agreement. The Accounting Arbitrator shall issue a written report containing a
final Closing Statement setting forth its determination of Closing Net Working Capital and Net Closing Cash,
which determination shall be final and binding upon Parent, the Surviving Corporation, the Equityholders
Representative and the Equityholders. Any upfront or other fees or expenses charged by the Accounting
Arbitrator prior to the final determination shall be paid fifty percent (50%) by Parent and fifty percent (50%)
by the Equityholders Representative, subject to the remaining provisions of this Section 2.6(c). The final
aggregate fees and expenses of the Accounting Arbitrator incurred in connection with the determination of
the disputed items (including any upfront or other fees previously paid) shall be paid by Parent and by the
Equityholders Representative (on behalf of the Equityholders, to be paid from the Representative Holdback
Amount) based on the relative success of their positions as compared to the final determination of the
Accounting Arbitrator. By way of example, if Parent has taken the position that the Closing Net Working
Capital was $1,000,000 less than the Estimated Closing Net Working Capital and the Equityholders
Representative has taken the position that the Closing Net Working Capital was $500,000 greater than the
Estimated Closing Net Working Capital (and the parties had otherwise agreed on Net Closing Cash) and the
Accounting Arbitrator finally
8
determines that the Closing Net Working Capital was equal to the Estimated Closing Net Working Capital,
then Parent shall ultimately pay two thirds (2/3) of the fees and expenses of the Accounting Arbitrator and
the Equityholders Representative (on behalf of the Equityholders) shall ultimately pay one third (1/3) of the
fees and expenses of the Accounting Arbitrator. To the extent either Parent or the Equityholders Representative
has made payments to the Accounting Arbitrator in excess of the amount of fees and expenses ultimately
determined to be payable by such Party, the other Party shall reimburse such first Party in an amount equal
to such excess. Parent and the Equityholders Representative shall, and Parent shall cause the Surviving
Corporation to, cooperate fully with the Accounting Arbitrator and respond on a timely basis to all requests
for information or access to documents or personnel made by the Accounting Arbitrator, all with the intent
to fairly and in good faith resolve all disputes relating to the Closing Statement as promptly as reasonably
practicable.
(d)
If the aggregate amount of Closing Net Working Capital plus Net Closing Cash as
finally determined in accordance with Section 2.6(c) is less than the aggregate amount of Estimated Closing
Net Working Capital plus Estimated Closing Cash, then the amount of such difference (the “WC Deficiency”)
shall be paid in the following sequential manner: (i) to the extent there is a WC Estimated Surplus, the
Equityholders Representative shall pay to Parent the WC Deficiency from the WC Estimated Surplus, and
any remaining portion of the WC Estimated Surplus shall be paid to the Equityholders pursuant to Section
2.6(e); (ii) if the WC Deficiency exceeds the WC Estimated Surplus (if any) the amount of the Promissory
Note shall be reduced by the amount of the difference between the WC Deficiency and the WC Estimated
Surplus (if any) up to an amount equal to $1,500,000 (and the Surviving Corporation and Equityholders
Representative shall amend the Promissory Note to reflect the reduced amount); (iii) to the extent the WC
Deficiency exceeds the combined amount of the WC Estimated Surplus (if any) plus $1,500,000, then the
Equityholders Representative shall pay to Parent from the remaining Representative Holdback Amount an
amount in cash equal to such excess; and (iv) to the extent the WC Deficiency exceeds the combined amount
of the WC Estimated Surplus (if any) plus $1,500,000 plus the remaining Representative Holdback Amount,
then the Stockholder Parties shall pay (which obligation shall be on a several basis based on their respective
Indemnity Pro Rata Share) to Parent an amount in cash equal to such excess. If the aggregate amount of
Closing Net Working Capital plus Net Closing Cash as finally determined in accordance with Section 2.6
(c) is greater than the aggregate amount of Estimated Closing Net Working Capital plus Estimated Closing
Cash, then the amount of such difference shall be paid by Parent or the Surviving Corporation to the
Equityholders Representative (for further payment to the Equityholders in accordance with Section 2.6(e))
and the Equityholders Representative shall distribute the WC Estimated Surplus to the Equityholders in
accordance with Section 2.6(e). Any payments required to be made pursuant to this Section 2.6(d) shall be
made by wire transfer within five (5) Business Days after the final determination of Closing Net Working
Capital and Net Closing Cash.
(e)
If Parent or the Surviving Corporation is obligated to make payments to the
Equityholders Representative pursuant to Section 2.6(d), then, subject to Section 12.1(b), the Equityholders
Representative shall disburse and pay the aggregate amount paid to it pursuant to Section 2.6(d) to the
Equityholders in accordance with their respective Equity Ownership Percentages and, with respect to the
Stockholders, the payment instructions set forth in their respective Letters of Transmittal.
9
2.7.
Representative Holdback Amount and WC Estimated Surplus.
(a)
If and to the extent that any portion of the Representative Holdback Amount remains
unspent at the time that the final payment is made under the Promissory Note, then, Subject to Section 12.1
(b), the Equityholders Representative shall pay over such remaining portion of the Representative Holdback
Amount at such time to the Equityholders in the same manner as if such funds were being paid from payments
received under the Promissory Note.
(b)
The Equityholders Representative shall retain the WC Estimated Surplus (if any)
on behalf of the Equityholders and shall distribute the WC Estimated Surplus to the applicable parties pursuant
to and in accordance with Section 2.6(d).
2.8.
Tax Withholding. Each of Parent, the Company, the Surviving Corporation and any
applicable Subsidiary thereof, as applicable, shall be entitled to deduct and withhold from any amounts
payable by it pursuant to this Agreement any withholding Taxes or other amounts required by Law to be
deducted and withheld. To the extent that any such amounts are so deducted or withheld, such amounts will
be treated for all purposes of this Agreement as having been paid to the person with respect to whom such
deduction and withholding was made.
2.9.
Tax Deductions. It is the intent of the Parties that, to the extent permitted by applicable Tax
Law, all income Tax deductions with respect to, or resulting from, the payment of any Transaction Expenses,
the Initial Stock Option Cancellation Payments, the payments to the holders of Restricted Stock and Restricted
Stock Units, the payment of the Closing Bank Debt at Closing (including, for the avoidance of doubt, any
Tax deductions that may be available with respect to the acceleration of original issue discount, any deferred
underwriting fees or expenses, any deferred sponsor transaction fees and any other deferred financing fees
or costs in connection with the repayment of the Closing Bank Debt) and any payments to the former holders
of Stock Options, shares of Restricted Stock and Restricted Stock Units in connection with the Closing shall
be deducted by the Company in a Pre-Closing Tax Period. The Company shall take all such deductions in
the final Tax Returns of the Company for the Tax period ending on the Closing Date, and Parent shall not
take any action, or permit the Surviving Corporation to take any action, inconsistent therewith.
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
Subject to such exceptions as are disclosed in the Disclosure Letter referencing the appropriate
Section or subsection of this ARTICLE III (or as may be otherwise readily apparent as responsive to any
other Section of this ARTICLE III), the Company represents and warrants to Parent and Merger Sub as of
the date of this Agreement and as of the Closing as follows:
3.1.
Organization and Qualification of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the State of Delaware. The Company
has all requisite corporate power and authority to own, lease and operate its properties and to carry on the
Business. The Company is duly qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which the conduct of its business or the ownership, leasing, holding or
use of its properties makes such
10
qualification necessary, except such other jurisdictions where the failure to be so qualified or licensed or in
good standing would not reasonably be expected to have a Company Material Adverse Effect. The Company
has made available to Parent a true, correct and complete copy of its Constitutional Documents, each as
amended to date, minute books and stock transfer records. The Company is not in violation of its
Constitutional Documents in any material respect.
3.2. Organization and Qualification of the Subsidiaries. Section 3.2 of the Disclosure Letter sets
forth a true, correct and complete list of each Subsidiary of the Company and indicates the type of entity
and jurisdiction of organization of each Subsidiary of the Company. Except for the Subsidiaries listed on
Section 3.2 of the Disclosure Letter, the Company does not have any direct or indirect equity investment or
other investment in any Person. Each Subsidiary of the Company is duly organized, validly existing and in
good standing (to the extent applicable) under the Laws of its jurisdiction of incorporation or formation.
Each Subsidiary of the Company has all requisite power and authority to own, lease and operate its properties
and to carry on its business. Each Subsidiary of the Company is duly qualified or licensed to do business
and is in good standing (to the extent applicable) as a foreign organization in each jurisdiction in which the
conduct of its business or the ownership, leasing, holding or use of its properties makes such qualification
necessary, except such other jurisdictions where the failure to be so qualified or licensed or in good standing
would not reasonably be expected to have a Company Material Adverse Effect. The Company has made
available to Parent a true, correct and complete copy of each of its Subsidiaries’ Constitutional Documents,
each as amended to date, minute books and stock transfer records. None of the Company’s Subsidiaries is
in violation of its Constitutional Documents in any material respect.
3.3.
Capitalization.
(a)
Section 3.3(a) of the Disclosure Letter lists a true, correct and complete list of (i)
the authorized Equity Securities of the Company, (ii) the number and kind of Equity Securities of the Company
that are issued and outstanding as of the date of this Agreement, (iii) the names of each of the holders of
such Equity Securities and the respective number and kind of Equity Securities of the Company held by
such holder and (iv) the equity holders of each of the Company’s Subsidiaries and the percentage of each
such Subsidiary’s Equity Securities held by each such equity holder. All of the outstanding Equity Securities
of the Company and each of its Subsidiaries are duly authorized, validly issued, fully paid and non-assessable
and were not issued in violation of, and are not subject to, any preemptive rights or in violation of any
applicable federal or state securities Laws. Except for rights granted to Parent under this Agreement, there
are no outstanding options, warrants, calls, demands, stock appreciation rights, Contracts or other rights of
any nature to purchase, obtain or acquire, or otherwise relating to, or any outstanding securities or obligations
convertible into or exchangeable for, or any voting agreements or any other similar contract, agreement,
arrangement, commitment, plan or understanding restricting or otherwise relating to the issuance, sale,
purchase, redemption, conversion, exchange, registration, voting, dividend, ownership or transfer rights of
any Equity Securities of the Company or any of its Subsidiaries. There are no outstanding Equity Securities
other than shares of Common Stock, Restricted Stock Units and Stock Options. All outstanding shares of
Restricted Stock, all outstanding Restricted Stock Units and all outstanding Stock Options will become fully
vested prior to the Effective Time. All of the outstanding Equity Securities of the Company and its Subsidiaries
have been issued in compliance in all material
11
respects with all requirements of Laws and Contracts applicable to the Company and the Subsidiaries and
their respective Equity Securities. Except for the Unpaid Class B Dividends, there are no accrued and unpaid
dividends (whether or not declared) with respect to any outstanding shares of Common Stock.
(b)
As of the date of this Agreement, there are outstanding Stock Options to purchase
271,744 shares of Class B Common Stock granted under the Company Equity Incentive Plan and 326,144
shares of Class B Common Stock remain reserved for issuance under the Company Equity Incentive Plan.
All of the Stock Options have been granted to eligible current or former officers, employees, consultants or
directors of the Company and its Subsidiaries in the ordinary course of business consistent with past practice
pursuant to the Company Equity Incentive Plan, and, in each case, initially exercisable for Class B Common
Stock at an exercise price equal to fair market value at the time of such grant. Section 3.3(b) of the Disclosure
Letter sets forth, with respect to each Stock Option, the name of the holder, the date of grant, current exercise
price, the vesting schedule, and the number of shares of Class B Common Stock subject to such Stock Option.
(c)
As of the date of this Agreement, there are outstanding 422,400 shares of Restricted
Stock granted under the Company Equity Incentive Plan. All of the shares of Restricted Stock have been
granted to eligible current or former officers, employees, consultants or directors of the Company and its
Subsidiaries in the ordinary course of business consistent with past practice pursuant to the Company Equity
Incentive Plan, and, in each case, represent restricted shares of Class B Common Stock issued under the
Company Equity Incentive Plan. Section 3.3(c) of the Disclosure Letter sets forth, with respect to each
award of Restricted Stock, the name of the holder, the date of grant, the vesting schedule or vesting
contingencies, and the number of shares of Restricted Stock subject to such award.
(d)
As of the date of this Agreement, there are outstanding 24,000 Restricted Stock
Units granted under the Company Equity Incentive Plan. All of the Restricted Stock Units have been granted
to eligible current or former officers, employees, consultants or directors of the Company and its Subsidiaries
in the ordinary course of business consistent with past practice pursuant to the Company Equity Incentive
Plan, and, in each case, represent the right to receive Class B Common Stock upon vesting. Section 3.3(d)
of the Disclosure Letter sets forth, with respect to each Restricted Stock Unit, the name of the holder, the
date of grant, the vesting schedule or vesting contingencies, and the number of shares of Class B Common
Stock subject to such Restricted Stock Unit.
3.4.
Authority. The Company has all requisite corporate power and authority to execute and
deliver this Agreement and to perform all of its obligations hereunder and to comply with the terms, conditions
and provisions hereof. Subject to the Stockholder Approval, the execution, delivery and performance by
the Company of this Agreement and the consummation of the transactions contemplated to be performed by
it under this Agreement have been duly authorized by all necessary and proper corporate action on the part
of the Company. This Agreement has been duly authorized, executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by bankruptcy,
12
insolvency, reorganization, moratorium or similar Laws relating to or affecting the enforcement of creditors’
rights in general and by general principles of equity.
3.5.
No Conflict. The execution, delivery and performance by the Company of this Agreement,
the consummation by the Company and its Subsidiaries of the transactions contemplated hereby and the
compliance by the Company and its Subsidiaries with the terms, conditions and provisions hereof does not
and will not, with or without the giving of notice or the lapse of time or both, (a) result in the creation or
imposition of any material Lien upon any of the properties or assets of the Company or any of its Subsidiaries,
(b) conflict with the Company’s or any of its Subsidiaries’ respective Constitutional Documents, each as
amended to date, or (c) result in a material violation or breach of the terms, conditions or provisions of, or
constitute a material default or event of default, or create a right of acceleration, termination or cancellation
or a loss of any material rights under (i) any of the terms, conditions or provisions of any Material Contract,
or (ii) any Law, License, Judgment or other requirement to which the Company, any of its Subsidiaries or
any of their respective properties or assets are subject.
3.6.
Consents; Stockholder Approval. Section 3.6 of the Disclosure Letter lists each material
consent, waiver, approval, Judgment and authorization of, and each registration, declaration and filing with,
and each material notice to, any Governmental Entity or other Person that is required by, or with respect to,
the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (a) the Stockholder Approval, (b) the
filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (c) notices and filings
required under the HSR Act and (d) any filings that are required under any applicable federal or state securities
Laws. The Stockholder Approval is the only vote of the Stockholders required to adopt this Agreement and
approve the Merger. Pursuant to Section 3(d) of the Stockholder Agreement, if this Agreement and the
Merger are approved by Sphere, then Sphere will have the right to require the stockholders party to such
Stockholder Agreement to (x) vote all of the shares of the Company’s capital stock owned by them in favor
of adopting this Agreement and approving the Merger and (y) waive any dissenters’ rights, appraisal rights
or similar rights which they may have under Applicable Law, including under Section 262 of the DGCL.
3.7.
Financial Statements.
(a)
Section 3.7(a) of the Disclosure Letter contains true, correct and complete copies
of (i) the audited consolidated balance sheets, audited consolidated statements of operations and audited
consolidated statements of cash flows of KAO and its Subsidiaries for the fiscal years ended January 1, 2011,
December 31, 2011 and December 29, 2012, (ii) the unaudited unconsolidated balance sheet, unaudited
unconsolidated statement of operations and unaudited unconsolidated statement of cash flows of the
Company for that fiscal year ended December 29, 2012, (iii) the unaudited consolidated balance sheet of
KAO and its Subsidiaries and the unaudited unconsolidated balance sheet of the Company (the “Balance
Sheets”), each as of June 29, 2013 (the “Balance Sheet Date”) and the related unaudited consolidated
statements of operations and statements of cash flows of KAO and its Subsidiaries and the related unaudited
unconsolidated statements of operations of the Company, each for the period then ended (collectively, the
“Financial Statements”).
13
(b)
The Financial Statements have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated, except for the absence of footnotes in the case of the
unaudited interim Financial Statements. The audited consolidated balance sheet of KAO and its Subsidiaries
for the fiscal year ended December 29, 2012 was prepared on a basis consistent with the Accounting
Conventions. The Financial Statements present fairly, in all material respects, the consolidated financial
position, results of operations and cash flows of the Company and its Subsidiaries as of the dates and for the
periods indicated therein, subject, in the case of the unaudited interim financial statements, to normal year-
end adjustments. Except as set forth on the Balance Sheets, neither the Company nor any of its Subsidiaries
is obligated with respect to, or has any Liability for, Indebtedness as of the Balance Sheet Date.
(c)
Section 3.7(c) of the Disclosure Letter under the heading “Letters of Credit” sets
forth a true, correct and complete list of the letters of credit currently outstanding under the Revolving Credit
Facility that have been issued for the benefit of third parties in support of the business operations of the
Company and its Subsidiaries (the “Letters of Credit”). Other than the Letters of Credit, neither the Company
nor any of its Subsidiaries has issued to any Person any letters of credit or other similar security agreements.
With respect to each Letter of Credit: (i) such Letter of Credit is legal, valid, binding, enforceable, and in
full force and effect; (ii) no party is in breach or default, and no event has occurred that with notice or lapse
of time would constitute a breach of default, or permit termination, modification or acceleration, under such
Letter of Credit; (iii) no party has repudiated any provision of such Letter of Credit; (iv) such Letter of Credit
is sufficient for the applicable contract or bid to which it related; and (v) Section 3.7(c) of the Disclosure
Letter under the heading “Letters of Credit Agreements” (the “Letters of Credit Agreements”) sets forth the
agreements to which the Company or any of its Subsidiaries is a party that requires such Letter of Credit or
other similar security to be in place. True, correct and complete copies of the Letters of Credit have been
made available to Parent.
(d)
Section 3.7(d) of the Disclosure Letter contains a schedule prepared by the Company
of the calculation of Net Working Capital as of the end of the accounting period set forth thereon (the “Net
Working Capital Schedule”). The Net Working Capital Schedule was created from the underlying accounting
records of the Company and its Subsidiaries and was prepared in the ordinary course consistent with past
practice and the amounts reflected thereon are the same as the corresponding amounts that appear on such
accounting records as of July 26, 2013.
(e)
Neither the Company nor any of its Subsidiaries have any long term Liabilities to
their customers that would be required to be reflected or reserved against on a consolidated balance sheet
of the Company prepared in accordance with GAAP or in the notes thereto other than those reflected in the
Balance Sheets.
3.8.
No Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries has any
material Liabilities other than Liabilities (a) reflected or reserved against on the Financial Statements or the
notes thereto, (b) incurred after the Balance Sheet Date in the ordinary course of business consistent with
past practice, (c) as contemplated by this Agreement or otherwise in connection with the transactions
contemplated hereby, (d) as set forth on Section 3.8 of the Disclosure Letter, (e) for future performance under
Contracts to which the Company or one of its
14
Subsidiaries is a party or by which it is bound and under the Company Employee Plans (other than in each
case Liabilities arising out of a violation thereof or any noncompliance therewith), and (f) arising with respect
to subject matters specifically covered by other representations and warranties in this ARTICLE III.
3.9.
Absence of Certain Changes. Since the Balance Sheet Date, (a) there have not been any
events, occurrences, changes, developments or circumstances which would have, or reasonably be anticipated
to have, a Company Material Adverse Effect, and (b) neither the Company nor any of its Subsidiaries has
taken any action of the type referred to in Section 6.1.
3.10. Assets and Properties.
(a)
The Company and its Subsidiaries have good and valid title to all of their respective
material owned assets and properties (whether real, personal or mixed, or tangible or intangible) (including
all owned assets and properties reflected on the Balance Sheets, other than assets and properties disposed
of in the ordinary course of business since the Balance Sheet Date) free and clear of any Liens, other than
Permitted Liens.
(b)
Section 3.10(b) of the Disclosure Letter contains a true, correct and complete list
of each lease or license pursuant to which the Company or any of its Subsidiaries leases or licenses the use
of any personal property entered into (i) prior to the Balance Sheet Date that provides for annual rental
payments of $250,000 or more and (ii) after the Balance Sheet Date that provides for annual rental payments
of $100,000 or more (each, a “Personal Property Lease”). With respect to each Personal Property Lease:
(a) such Personal Property Lease is valid and binding on the Company and any of its Subsidiaries party
thereto and, to the Company’s Knowledge, each other party thereto, and is in full force and effect, (b) there
is no material breach or material default under such Personal Property Lease by the Company or any of its
Subsidiaries or, to the Company’s Knowledge, any other party thereto, (c) no event has occurred that with
or without the lapse of time or the giving of notice or both would constitute a material breach or material
default under such Personal Property Lease by the Company or any of its Subsidiaries or, to the Company’s
Knowledge, any other party thereto and (d) the Company or one of its Subsidiaries that is either the tenant
or licensee named under such Personal Property Lease has a good and valid leasehold interest in the personal
property that is subject to such Personal Property Lease and is in possession of the properties purported to
be leased or licensed thereunder.
3.11. Real Property; Real Property Leases.
(a)
Section 3.11(a) of the Disclosure Letter contains a true, correct, and complete list
of all real estate owned by the Company or any of its Subsidiaries (the “Owned Real Property”) including
with respect to each parcel of Owned Real Property the street address, the beneficial owner and the current
use of the property. With respect to each parcel of Owned Real Property: (a) the Company or one of its
Subsidiaries has good and marketable indefeasible fee simple title to such Owned Real Property and to all
of the buildings, structures and other improvements thereon free and clear of all Liens other than Permitted
Liens, and (ii) there are no outstanding agreements, options, rights of first offer or rights of first refusal on
the part of any Person to purchase such Owned Real Property.
15
(b)
Section 3.11(b) of the Disclosure Letter contains a true, correct and complete list
of each lease, sublease, license or similar agreement pursuant to which the Company or any of its Subsidiaries
is lessee, sublessee or licensee of, or holds or operates, any real property owned by any third Person (the
“Leased Real Property”), and any amendments, extensions or renewals thereto (each, a “Real Property
Lease”). With respect to each Real Property Lease: (a) such Real Property Lease is valid and binding on
the Company and any of its Subsidiaries party thereto and, to the Company’s Knowledge, each other party
thereto, and is in full force and effect, (b) there is no material breach or material default under such Real
Property Lease by the Company or any of its Subsidiaries party thereto or, to the Company’s Knowledge,
any other party thereto, (c) no event has occurred that with or without the lapse of time or the giving of notice
or both would constitute a material breach or material default under such Real Property Lease by the Company
or any of its Subsidiaries party thereto or, to the Company’s Knowledge, any other party thereto and (d) the
Company or one of its Subsidiaries that is either the tenant or licensee named under such Real Property
Lease has a good and valid leasehold interest in each parcel of real property that is subject to such Real
Property Lease and is in possession of the properties purported to be leased or licensed thereunder. Except
as expressly provided in the Real Property Leases, there are no security deposits under the Real Property
Leases. The consummation of the transactions contemplated by this Agreement will not result in any loss
or impairment of any of the Company’s or its Subsidiaries’ material rights, or require the delivery of notice
to, or consent from, any Person, under any of the Real Property Leases.
(c)
Neither the Company nor any of its Subsidiaries is a party to any lease that is required
to be recorded as a capitalized lease under GAAP.
(d)
The Real Property constitutes all of the real property that the Company and the
Subsidiaries (or their Affiliates) own, lease, operate or sublease in connection with the operation of the
Business. All public utilities, including water, sewer, gas, electric, telephone and drainage facilities, give
adequate service to the Real Property, and each parcel of the Real Property has sufficient access to and from
publicly dedicated streets for the conduct of the Business. True, correct and complete copies of (i) all deeds
and other instruments (as recorded) by which the Company acquired the Owned Real Property, (ii) the Real
Property Leases, and (iii) all title insurance policies, title opinions or commitments, surveys, abstracts,
subordination, non-disturbance, and attornment agreements (SNDAs), and appraisals prepared, performed
or entered into after April 5, 1999 that are in the Company or its Subsidiaries’ possession with respect to the
Real Property have been made available.
(e)
(i) Since January 1, 2012 there have not been actual, threatened or imminent changes
in the zoning of any parcel of the Real Property or any part thereof materially and adversely affecting the
current use, occupancy or value thereof and (ii) there is no pending or, to the Knowledge of the Company,
threatened condemnation, expropriation, requisition (temporary or permanent) or similar proceeding with
respect to any parcel of Real Property or any part thereof that would impair the existing use of the Real
Property. Except for the Permitted Liens, none of the Company or any of its Subsidiaries has assigned,
transferred or pledged any interest in any of the Real Property.
(f)
All buildings, structures, facilities and improvements located on the Real Property,
including buildings, structures, facilities and improvements that are under construction
16
(collectively “Improvements”) comply in all material respects with valid and current certificates of occupancy
or similar permits to the extent required by law for the use thereof, and the Improvements and the conduct
of the Business on the Real Property conform in all material respects with all requirements of Law.
3.12.
Intellectual Property.
(a)
Section 3.12(a) of the Disclosure Letter lists all Company Intellectual Property that
is registered or pending with any Governmental Entity or authorized private registrar in any jurisdiction
(collectively, “Intellectual Property Registrations”), including registered trademarks, domain names and
copyrights, issued and reissued patents, patent rights and pending applications for any of the foregoing.
(b)
The Company or one of its Subsidiaries owns all right, title and interest in and to
the Company Intellectual Property, free and clear of Liens.
(c)
To the Company’s Knowledge, no Employees or current or former independent
contractors of the Company or any of its Subsidiaries own any Intellectual Property relating to the Business
developed or produced by such Employee or contractor while employed or engaged by the Company or any
of its Subsidiaries.
(d)
Section 3.12(d) of the Disclosure Letter lists all licenses, sublicenses and other
agreements (other than those relating to off-the-shelf software generally available to the public) whereby
the Company or any of its Subsidiaries is granted material rights, interests and authority, whether on an
exclusive or non-exclusive basis, with respect to any Intellectual Property for which the Company or one of
its Subsidiaries holds exclusive or non-exclusive rights or interests granted by or through a license from
other Persons that is used in or necessary for the Business. All such agreements are valid, binding and
enforceable between the Company or its Subsidiary party thereto and the other parties thereto, and the
Company or such Subsidiary and such other parties are in compliance in all material respects with the terms
and conditions of such agreements. The Company has made available true, correct and complete copies of
all such agreements.
(e)
To the Company’s Knowledge, the Company Intellectual Property does not infringe
the Intellectual Property of any third party and is not being infringed by any third party. Neither the Company
nor any of its Subsidiaries is a party to any claim, suit or other action that challenges the validity, enforceability
or ownership of, or the right to use, sell or license the Company Intellectual Property and, to the Company’s
Knowledge, no such claim, suit or other action is threatened against any the Company or any of its
Subsidiaries.
3.13. Contracts.
(a)
Section 3.13(a) of the Disclosure Letter lists all of the following Contracts (or group
of related Contracts) to which the Company or any of its Subsidiaries are a party or by which any of them
are bound that:
17
during the year ended December 29, 2012 resulted in, or during the year
ending December 28, 2013, is reasonably expected to result in, annual aggregate payments or revenue to the
Company and its Subsidiaries of at least $250,000;
(i)
(ii)
during the year ended December 29, 2012 resulted in, or during the year
ending December 28, 2013 is reasonably expected to result in, annual aggregate payments or expenditures
by the Company and its Subsidiaries of at least $500,000 and differs in any material respect from the form
and content of the Company’s standard form supplier agreement described in Section 3.13(a)(ii) of the
Disclosure Letter;
(iii)
is an employment agreement with any Employee or an independent
contractor agreement with an independent contractor of the Company or any of its Subsidiaries that provides
for annual compensation in excess of $100,000 or that cannot be terminated at will without penalty or on
written notice of ninety (90) days or less or is a severance pay practice or agreement with respect to any
Employee;
(iv)
contains any covenant limiting the freedom of the Company or any of its
Subsidiaries to engage in any line of business or in any geographic territory or to compete with any Person,
or which grants to any Person any exclusivity to any geographic territory, any customer, or any product or
service;
the aggregate for any single project or related series of projects;
(v)
involves future payments for capital expenditures in excess of $250,000 in
(vi)
is not already fully performed or otherwise contains outstanding
obligations, warranties or rights of the Company or any of its Subsidiaries relating to the direct or indirect
acquisition or disposition of assets, capital stock or other ownership interest or any other interest in any
business enterprise outside the ordinary course of the Company’s or any of its Subsidiaries’ businesses;
Subsidiaries;
(vii)
relates to Indebtedness for borrowed money by the Company or any of its
the sharing of profits, losses, costs or liabilities with any Person;
(viii)
is a joint venture, partnership, strategic alliance or other Contract involving
(ix)
grants any so-called “most favored nation” or similar rights;
(x)
is with any current or former director, officer or employee of the Company
or any of its Subsidiaries or any Stockholder or any Affiliate of any Stockholder or pursuant to which the
Company or any of its Subsidiaries has advanced or loaned any amount to any such Person, other than
business travel advances in the ordinary course of business consistent with past practice in amounts less than
$10,000;
(xi)
would or would reasonably be likely to prohibit or materially delay the
Merger or the other transactions contemplated hereby or that would accelerate payment obligations,
performance deadlines, or modify or accelerate any other material obligation due to the Merger or the other
transactions contemplated hereby;
18
legal proceedings against any Person; or
(xii)
restricts the ability of the Company or any of its Subsidiaries to assert any
(xiii)
is with a Governmental Entity;
(b)
Each Contract that is required to be listed on Section 3.13(a) of the Disclosure Letter,
(each, a “Material Contract”) is valid and binding on the Company and any of its Subsidiaries party thereto
and, to the Company’s Knowledge, the other parties thereto, and is in full force and effect and, except for
those Material Contracts that by their terms will expire prior to the Closing, will continue in full force and
effect after the Closing, in each case without the Consent of any other Person other than the Consents set
forth on Section 3.5 of the Disclosure Letter. There is no material breach or material default under any
Material Contract by the Company or any of its Subsidiaries party thereto or, to the Company’s Knowledge,
any other party thereto and no event has occurred that with or without the lapse of time or the giving of
notice or both would constitute a material breach or material default under any Material Contract by the
Company or any of its Subsidiaries party thereto or, to the Company’s Knowledge, any other party thereto.
The Company has made available true, correct and complete copies of each Material Contract.
3.14. Litigation. There are no material Legal Actions pending or, to the Company’s Knowledge,
threatened against or naming as a party thereto the Company or any of its Subsidiaries, any of their respective
properties or assets or any of their employees, officers, directors or managers in their capacity as such. None
of the Company, any of its Subsidiaries, or their respective properties is subject to any Judgment that materially
impairs the Company’s or such Subsidiary’s ability to operate the Business or that requires any future
payments. Neither the Company nor any of its Subsidiaries are party to any Contract or subject to any
Judgment that relates to any settlement involving future payments or providing behavioral remedies or
admissions of criminal conduct.
3.15. Compliance with Laws; Permits.
(a)
The Company and each of its Subsidiaries are, and since January 1, 2009, have
been, in material compliance with all Applicable Laws. Since January 1, 2009, neither the Company, nor
any of its Subsidiaries has received any written, or to the Company’s Knowledge, verbal notice or follow-
up communication from any Governmental Entity regarding any actual, alleged, or potential (i) non-routine
administrative, civil or criminal investigation, inquiry or audit (other than Tax audits) relating to the Company
or any of its Subsidiaries, or (ii) noncompliance with any Applicable Law or Judgment.
(b)
All material Permits required for the Company and its Subsidiaries to conduct the
Business have been obtained and are valid and in full force and effect. All fees and charges with respect to
such Permits have been paid in full. Section 3.15(b) of the Disclosure Letter lists all current material Permits
issued to the Company and its Subsidiaries, including the names of the Permits and their respective dates of
issuance and expiration. Neither the transactions contemplated by this Agreement nor any other event has
occurred that, with or without notice or lapse of time or both, would or would reasonably be expected to
result in the
19
revocation, suspension, lapse or limitation of any Permit set forth on Section 3.15(b) of the Disclosure Letter.
3.16.
Insurance. Section 3.16 of the Disclosure Letter sets forth all material insurance policies
covering the assets, business, equipment, properties, operations, Employees, directors or managers (as
applicable), and officers of the Company or any of its Subsidiaries. There is no claim by the Company or
any of its Subsidiaries pending under any of such policies as to which coverage has been questioned, denied
or disputed or that the Company has a reason to believe will be denied or disputed by the underwriters of
such policies or bonds and there is no pending claim that will exceed the policy limits. All premiums due
and payable under all such policies and bonds have been paid (or if installment payments are due, will be
paid if incurred prior to the Closing) and the Company and its Subsidiaries are otherwise in material
compliance with the terms of such policies.
3.17. Environmental Matters.
(a)
The Company and its Subsidiaries (i) are in compliance in all material respects with
all applicable Environmental Laws and with the terms and conditions of all Licenses required under applicable
Environmental Laws (all of which are set forth on Section 3.15(b) the Disclosure Letter), and (ii) have not
received any written notice from any Governmental Entity or other Person of any pending investigations or
actual or threatened liabilities of the Company or any of its Subsidiaries under any applicable Environmental
Laws
(b)
No real property currently or formerly owned, operated or leased by the Company
or any of its Subsidiaries is listed on, or has been proposed for listing on, the National Priorities List (or
CERCLIS) under CERCLA, or, to the Company’s Knowledge, any similar state list.
(c)
Neither the Company nor any of its Subsidiaries has received any notice that any
of the Real Property (including soils, groundwater, surface water, buildings and other structure located on
any Real Property) has been contaminated with, or impacted by, any Hazardous Material that could reasonably
be expected to result in an material Environmental Claim against, or a material violation of Environmental
Law or term of any material Permit by, the Company or any of its Subsidiaries.
(d)
There are no active or abandoned aboveground or underground storage tanks owned
or operated by the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
received any notice regarding potential Liabilities with respect to any off site Hazardous Materials treatment,
storage, recycling, or disposal facilities or locations used by the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has retained or assumed, by contract or operation of Law, any
Liabilities of third parties under Environmental Law.
(e)
The Company has made available any and all environmental reports, studies, audits,
site assessments, risk assessments, remedial activities and other similar documents with respect to the business
or assets of the Company or any of its Subsidiaries that are in the possession or control of the Company or
any of its Subsidiaries related to compliance
20
with Environmental Laws, Environmental Claims (including any related notices) or the Release of Hazardous
Materials.
3.18. Employment Matters.
(a)
The Company has made available to Parent a list of all full or part-time Key
Employees and such list also sets forth for each such Key Employee the following: (i) name; (ii) title or
position (including whether full or part time); (iii) hire date; (iv) current annual base compensation rate; and
(v) commission, bonus or other incentive-based compensation.
(b)
Neither the Company nor any of its Subsidiaries is, or has been, a party to any
Contract regarding collective bargaining or other Contract with or to any labor union, association, trade
union, works council or labor organization (collectively, “Union”) representing any employee of the Company
or any of its Subsidiaries, nor does any Union or collective bargaining agent represent any Employee. No
Union or other collective bargaining agent has been recognized or certified as the collective bargaining
representative of any group or unit of Employees. There are no unfair labor practice charges or complaints
pending or, to the Company’s Knowledge, threatened, against the Company or any of its Subsidiaries. Since
January 1, 2009, there has not been any labor strike, slow-down, work stoppage, walk-out, boycott, corporate
campaign, “work to rule” campaign, handbilling, picket, arbitration or other concerted labor activity involving
the Company or any of its Subsidiaries, and no such labor strike, slow-down, work stoppage, walk-out,
boycott, corporate campaign, “work to rule” campaign, handbilling, picket, arbitration or other concerted
labor activity is now pending or, to the Company’s Knowledge, threatened, against the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries has any duty to bargain with any Union.
Neither the Company nor any of its Subsidiaries is or, since January 1, 2009, has been the subject of any
organizational efforts, or threatened organizational efforts, by any Union or other collective bargaining
association with respect to any Employee.
(c)
The Company and each of its Subsidiaries is and has been in compliance in all
material respects with all Applicable Laws pertaining to employment and employment practices, including
all Laws relating to labor relations, unfair labor practices, equal employment opportunities, fair employment
practices, employment discrimination, harassment, retaliation, reasonable accommodation, affirmative
action, immigration, disability rights or benefits, immigration, wages, hours, overtime compensation, child
labor, hiring, promotion and termination of employees, posting requirements, working conditions, meal and
break periods, rest periods, labor relations, data privacy, data protection, privacy, reductions in force, plant
closings, mass layoffs, pay equity, health and safety, workers’ compensation, leaves of absence,
unemployment insurance, and the collection and payment of withholding and/or social security taxes and
other applicable taxes, or any other employment related matter arising under Applicable Laws.
(d)
There are no Legal Actions against the Company or any of its Subsidiaries pending,
or to the Company’s Knowledge, threatened to be brought or filed, by or with any Governmental Entity or
arbitrator in connection with the employment of any current or former applicant, employee, consultant or
independent contractor of the Company or any of its Subsidiaries, including any Legal Action relating to
labor relations, unfair labor practices, equal
21
employment opportunities, fair employment practices, employment discrimination, harassment, retaliation,
reasonable accommodation, affirmative action, immigration, disability rights or benefits, immigration,
wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, posting
requirements, working conditions, meal and break periods, rest periods, labor relations, data privacy, data
protection, privacy, reductions in force, plant closings, mass layoffs, pay equity, health and safety, workers’
compensation, leaves of absence, unemployment insurance, and the collection and payment of withholding
and/or social security taxes and other applicable taxes, or any other employment related matter arising under
Applicable Laws.
(e)
All individuals characterized and treated by the Company as independent
contractors or consultants are properly treated as independent contractors under all Applicable Laws. All
Employees classified as exempt under the Fair Labor Standards Act and Applicable Law regarding wages
and hours are properly classified as such. Neither the Company nor any of its Subsidiaries has incurred any
liability or potential liability under the Fair Labor Standards Act or Applicable Law regarding wages and
hours. Each nonexempt Employee under the Fair Labor Standards Act and Applicable Law regarding wages
and hours has been paid all overtime compensation consistent with Applicable Laws.
(f)
Since January 1, 2009, neither the Company nor any of its Subsidiaries has
implemented any plant closing or layoff of employees that could implicate the WARN Act, and neither
Company nor its Subsidiaries has any plans to undertake any action in the future that would trigger the
WARN Act.
(g)
Neither the Company nor any of its Subsidiaries employ or utilize leased employees.
(h)
Neither the Company nor any of its Subsidiaries are (i) a government contractor
subject to the provisions of Executive Order 11246 and similar or related state and local Laws or (ii) party
to any Contract that constitutes or relates to an affirmative action plan or program as defined by Executive
Order 11246 or similar or related state and local Laws.
(i)
To the Company’s Knowledge, no executive, manager, Key Employee, or group of
Employees, has given any notice of termination of employment, or notice of any intent to terminate
employment, with the Company or any of its Subsidiaries.
3.19. Employment Benefit Plans.
(a)
Section 3.19(a) of the Disclosure Letter sets forth a true, correct and complete list
of each existing Company Employee Plan. None of the Company Employee Plans is subject to Title IV of
ERISA or Section 412 of the Code and neither the Company, any of its Subsidiaries nor any ERISA Affiliate
has, during any time in the six (6)-year period preceding the Closing Date, contributed to, sponsored,
maintained or administered any “employee pension benefit plan” within the meaning of Section 3(2) of
ERISA that is or was subject to Title IV of ERISA or Section 412 of the Code. None of the Company, any
of its Subsidiaries or any Affiliate is required, or has during any time in the six (6)-year period preceding
the Closing Date been required, to contribute to or has incurred any withdrawal liability in respect of any
22
“multiemployer plan” (as defined in Section 4001(a)(3) of ERISA). Each Company Employee Plan (and
each related trust, insurance contract or fund) is, and has been administered and operated, in compliance in
all material respects with its terms and with all Applicable Law. There are no pending or, to the Company’s
Knowledge, threatened, claims by or on behalf of any of the Company Employee Plans, by any employee
or beneficiary covered under any such Company Employee Plan, or otherwise involving any such Company
Employee Plan (other than ordinary course claims for benefits). Neither the Company nor any of its
Subsidiaries is a party to or participates in or contributes to any scheme, agreement, or arrangement (whether
legally enforceable or not) for the provision of any pension, retirement or similar benefits for any Employee
or for the widow, widower, surviving civil partner, child or dependent of any Employee.
(b) With respect to each Company Employee Plan, the Company has made available
true, correct and complete copies of each of the following: (i) where the Company Employee Plan has been
reduced to writing, the plan document together with all amendments; (ii) where the Company Employee
Plan has not been reduced to writing, a written summary of all material plan terms; (iii) where applicable,
copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and
contracts, administration agreements and similar agreements, and investment management or investment
advisory agreements, now in effect or required in the future as a result of the transactions contemplated by
this Agreement or otherwise; (iv) copies of any summary plan descriptions, summaries of material
modifications, employee handbooks and any other written communications (or a description of any oral
communications) relating to any Company Employee Plan; (v) in the case of any Company Employee Plan
that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination,
opinion or advisory letter from the Internal Revenue Service; (vi) in the case of any Company Employee
Plan for which a Form 5500 is required to be filed, a copy of the most recently filed Form 5500, with schedules
attached; (vii) actuarial valuations and reports related to any Company Employee Plans with respect to the
two (2) most recently completed plan years; and (viii) copies of material notices, letters or other
correspondence from the Internal Revenue Service, Department of Labor or Pension Benefit Guaranty
Corporation relating to the Company Employee Plan.
(c)
Each Company Employee Plan has been established, administered and maintained
in accordance with its terms and in material compliance with all Applicable Laws (including ERISA and the
Code). Each Company Employee Plan that is intended to be qualified under Section 401(a) of the Code (a
“Qualified Benefit Plan”) is so qualified and has received a favorable and current determination letter from
the Internal Revenue Service, or with respect to a prototype plan, can rely on an opinion letter from the
Internal Revenue Service to the prototype plan sponsor, to the effect that such Qualified Benefit Plan is so
qualified and that the plan and the trust related thereto are exempt from federal income taxes under Sections
401(a) and 501(a), respectively, of the Code. There is no pending or, to the Company’s Knowledge, threatened
Legal Proceeding (i) relating to the revocation of any such determination letter from the Internal Revenue
Service or the unavailability of reliance on such opinion letter from the Internal Revenue Service or (ii) that
could subject the Company or any of its Subsidiaries to a penalty under Section 502 of ERISA or to a tax or
penalty under Section 4975 of the Code. All benefits, contributions and premiums relating to each Company
Employee Plan have been timely paid in accordance with the terms of such Company Employee Plan and
all Applicable Laws and
23
accounting principles, and all benefits accrued under any unfunded Company Employee Plan have been
paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with, GAAP.
(d)
Neither the Company nor any of its ERISA Affiliates has (i) incurred or reasonably
expects to incur, either directly or indirectly, any material Liability under Title I or Title IV of ERISA or
related provisions of the Code or foreign Law relating to employee benefit plans; (ii) failed to timely pay
premiums to the Pension Benefit Guaranty Corporation; (iii) withdrawn from any Qualified Benefit Plan;
or (iv) engaged in any transaction which would give rise to Liability under Section 4069 or Section 4212(c)
of ERISA.
(e)
With respect to each Company Employee Plan (i) no such plan is a “multiple
employer plan” within the meaning of Section 413(c) of the Code or a “multiple employer welfare
arrangement” (as defined in Section 3(40) of ERISA); (ii) no Legal Action has been initiated by the Pension
Benefit Guaranty Corporation to terminate any such plan or to appoint a trustee for any such plan; (iii) no
such plan is subject to the minimum funding standards of Section 302 of ERISA or Section 412 of the Code
and no Company Employee Plan has failed to satisfy the minimum funding standards of Section 302 of
ERISA or Section 412 of the Code; and (iv) no “reportable event,” as defined in Section 4043 of ERISA,
has occurred with respect to any such Company Employee Plan.
(f)
Except as required by Applicable Law, no provision of any Company Employee
Plan or collective bargaining agreement could reasonably be expected to result in any limitation on the
Surviving Corporation or any of its Affiliates from amending or terminating any Company Employee Plan.
(g)
Except as required under Section 601 et. seq. of ERISA or other Applicable Law,
no Company Employee Plan provides post-termination or retiree welfare benefits to any individual for any
reason, and neither the Company, any of its Subsidiaries nor any of its ERISA Affiliates has any Liability
to provide post-termination or retiree welfare benefits to any individual or ever represented, promised or
contracted to any individual that such individual would be provided with post-termination or retiree welfare
benefits.
(h)
There is no pending or, to the Company’s Knowledge, threatened Legal Action
relating to a Company Employee Plan (other than routine claims for benefits), and no Company Employee
Plan has since January 1, 2009 been the subject of an examination or audit by a Governmental Entity or the
subject of an application or filing under or is a participant in, an amnesty, voluntary compliance, self-
correction or similar program sponsored by any Governmental Entity.
(i)
There has been no amendment to, announcement by the Company or any of its
Affiliates relating to, or change in employee participation or coverage under, any Company Employee Plan
or collective bargaining agreement that would materially increase the annual expense of maintaining such
plan above the current level of expense with respect to any director, officer or employee, as applicable.
24
(j)
Section 3.19(j) of the Disclosure Letter lists each agreement, contract, plan or other
arrangement (whether or not written and whether or not a Company Employee Plan) to which the Company
or any of its Affiliates is a party that is a “nonqualified deferred compensation plan” within the meaning of
Code Section 409A and the Treasury Regulations promulgated thereunder. Each such nonqualified deferred
compensation plan complies with and has been operated and administered in accordance with the
requirements of Code Section 409A, the Treasury Regulations promulgated thereunder and any other Internal
Revenue Service guidance issued thereunder. As of immediately prior to the Effective Time, each outstanding
Stock Option is exempt from Code Section 409A.
(k)
Each individual who is classified by the Company or one of its Subsidiaries as an
independent contractor has been properly classified for purposes of participation and benefit accrual under
each Company Employee Plan.
(l)
Neither the execution of this Agreement nor any of the transactions contemplated
by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle
any current or former director, officer, employee of the Company or any of its Subsidiaries to severance pay
or any other payment; (ii) accelerate the time of payment, funding or vesting of, or increase the amount of,
compensation due to any such individual; (iii) limit or restrict the right of the Company to merge, amend or
terminate any Company Employee Plan; (iv) increase the amount payable under or result in any other material
obligation pursuant to any Company Employee Plan; or (v) result in “excess parachute payments” within
the meaning of Section 280G(b) of the Code that have not previously been disclosed to Parent.
3.20. Taxes.
(a)
The Company and each of its Subsidiaries has timely filed all material Tax Returns
required to be filed by it. All such Tax Returns were true, correct and complete in all material respects and
all Taxes due and owing by the Company and each of its Subsidiaries (whether or not shown on any such
Tax Return) have been paid or adequate reserves therefor have been established on the Balance Sheets in
accordance with GAAP. The Company has made available true, correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by
the Company or any of its Subsidiaries filed or received since January 1, 2009.
(b)
Neither the Company nor any of its Subsidiaries has received from any foreign,
federal, state, or local taxing authority (including jurisdictions where the Company has not filed Tax Returns)
any (i) written notice indicating an intent to open an audit or other review, (ii) request for information related
to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted,
or assessed by any taxing authority against the Company or any of its Subsidiaries that has not been resolved.
The Company has disclosed on its or its Subsidiaries’ federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax within the meaning of Code Section
6662. No extensions or waivers of statutes of limitations have been given or requested with respect to any
Taxes of the Company or any of its Subsidiaries.
25
(c)
There is no audit, examination, claim, assessment, levy, deficiency, administrative
or judicial proceeding, lawsuit or refund Legal Action pending or, to the Company’s Knowledge, threatened,
with respect to any Taxes for which the Company or any of its Subsidiaries are, or might otherwise be, liable,
and no taxing authority has given notice of the commencement of any audit, examination or deficiency Legal
Action with respect to any such Taxes. The Company has made available to Parent true, correct and complete
copies of all examination reports, closing agreements and statements of deficiencies assessed against or
agreed to by the Company or any of its Subsidiaries filed or received. There are no outstanding agreements
or waivers extending the statutory period of limitations applicable to any claim for, or the period for the
collection or assessment of, Taxes of the Company or any of its Subsidiaries due for any taxable period.
(d)
Neither the Company nor any of its Subsidiaries are liable, nor does the Company
nor any of its Subsidiaries have any potential Liability, for the Taxes of another Person (i) under any applicable
Tax Law, or (ii) by Contract, indemnity or otherwise.
(e)
The Company and its Subsidiaries have withheld and paid each Tax required to have
been withheld and paid in connection with amounts paid or owing to any employee, independent contractor,
creditor, customer, shareholder or other party, and complied with all information reporting and backup
withholding provisions of Applicable Law.
(f)
All deficiencies asserted, or assessments made, against the Company or any of its
Subsidiaries as a result of any examinations by any taxing authority have been fully paid.
(g)
There are no Liens for Taxes (other than for current Taxes not yet due and payable)
upon the assets of the Company or any of its Subsidiaries.
(h)
Neither the Company nor any of its Subsidiaries is a party to, or bound by, any Tax
indemnity, Tax-sharing or Tax allocation agreement.
(i)
No private letter rulings, technical advice memoranda or similar agreement or
rulings have been requested, entered into or issued by any taxing authority with respect to the Company or
any of its Subsidiaries.
(j)
Neither the Company nor any of its Subsidiaries has been a member of an affiliated,
combined, consolidated or unitary Tax group for Tax purposes other than the current consolidated group of
which the Company is the parent.
(k)
Neither the Company nor any of its Subsidiaries has agreed to make, nor is it required
to make, any adjustment under Sections 481(a) or 263A of the Code or any comparable provision of state,
local or foreign Tax Laws by reason of a change in accounting method or otherwise. Neither the Company
nor any of its Subsidiaries has taken any action that could defer a Liability for Taxes of the Company or any
of its Subsidiaries from any Pre-Closing Tax Period to any Post-Closing Tax Period.
(l)
Neither the Company nor any of its Subsidiaries is a U.S. real property holding
company (as defined in Section 897(c)(2) of the Code) during the applicable period
26
specified in Section 897(c)(1)(A)(ii) of the Code. No Stockholder is a “foreign person” as that term is used
in Treasury Regulations Section 1.1445-2.
(m)
Neither the Company nor any of its Subsidiaries has been a “distributing
corporation” or a “controlled corporation” in connection with a distribution described in Section 355 of the
Code.
(n)
Neither the Company nor any of its Subsidiaries is, or has been, a party to, or a
promoter of, a “reportable transaction” or any “listed transaction,” as defined in the Code or Treasury
Regulations.
(o)
Neither the Company nor any of its Subsidiaries is a party to any agreement, contract,
arrangement or plan that has resulted or could result, separately or in the aggregate, in the payment of any
“excess parachute payment” within the meaning of Code §280G (or any corresponding provision of state,
local or foreign Tax law).
(p)
Neither the Company nor any of its Subsidiaries owns an interest in any (i) domestic
international sales corporation, (ii) foreign sales corporation, or (iii) passive foreign investment company,
each within the meaning of the Code.
3.21. Ownership of Assets. All of the buildings, plants, structures, furniture, fixtures,
Improvements, machinery, equipment, vehicles and other items of tangible and intangible personal property
owned or leased by the Company and its Subsidiaries constitute all of the tangible and intangible personal
property used by the Company and its Subsidiaries to conduct the business and operations of the Company
and its Subsidiaries. The disclosures set forth on Section 3.21 of the Disclosure Letter shall not have any
effect or be deemed an exception to this Section 3.21 for purposes of ARTICLE IX.
3.22. Customers; Suppliers. Section 3.22 of the Disclosure Letter sets forth the names of the
Company’s and its Subsidiaries’ (a) ten (10) largest customers, measured by dollar volume of sales (during
each of calendar year 2012 and 2013 to date) and (b) twenty (20) largest suppliers, measured by dollar volume
of purchases (during each of calendar year 2012 and 2013 to date). No customer or supplier set forth or
required to be set forth on Section 3.22 of the Disclosure Letter has provided written or, to the Company’s
Knowledge, oral notice of such customer’s or supplier’s intention to cease or substantially reduce the use or
supply of products, goods, or services of or to the Business. Since the Balance Sheet Date and through the
date of this Agreement, there has not been any discontinuance of, or material change in, the discount to
“jobber” pricing for any applicable products or services supplied or provided by any supplier set forth or
required to be set forth on Section 3.22 of the Disclosure Letter and no such supplier has provided any written,
or to the Company’s Knowledge, oral notice of any such discontinuance or material change.
3.23. Bank Accounts; Powers of Attorney.
(a)
Section 3.23(a) of the Disclosure Letter sets forth a true, correct and complete list
of (including name of bank, address, account number and title) of all bank accounts and safe deposit boxes
utilized by the Company and its Subsidiaries and persons authorized to sign or otherwise act with respect
thereto.
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Section 3.23(b) of the Disclosure Letter sets forth a complete and correct list of all
Persons holding a general or special power of attorney granted by the Company or any of its Subsidiaries.
(b)
3.24.
Interested Party Transactions. No officer, director, employee, stockholder or Affiliate of the
Company or any of its Subsidiaries, or, to the Company’s Knowledge, any individual related by blood,
marriage or adoption to any such individual, or, to the Company’s Knowledge, any entity in which any such
Person or individual owns any material beneficial interest, (a) is a party to any Contract or transaction with
the Company or any of its Subsidiaries (other than employment agreements included in the Material Contracts
or the ownership of Equity Interests in the Company as set forth on Sections 3.3(a), 3.3(b) and 3.3(c) of the
Disclosure Letter), (b) has any direct legal interest in any tangible or intangible asset or property used by
the Company or its Subsidiaries, (c) has any direct or indirect ownership interest in any Person with which
the Company or any of its Subsidiaries has a business relationship or any Person that competes with the
Company or any of its Subsidiaries except for stock ownership of less than three percent (3%) in publicly
traded companies or Contracts entered into in the ordinary course of business consistent with past practice
on non-exclusive arm’s length terms with a portfolio company of a Stockholder Party, or (d) is directly or
indirectly indebted to the Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries is indebted (or committed to make loans or extend or guarantee credit) to any such Person,
whether directly or indirectly.
3.25. Brokers’ and Finders’ Fees. Except for the fees and expenses of Robert W. Baird & Co.
Incorporated and UBS Securities, LLC, which will be paid at Closing as Transaction Expenses, no investment
banker, broker, finder or other intermediary is entitled to any fee or commission in connection with the
transactions contemplated by this Agreement based on arrangements made on behalf of the Company or any
of its Subsidiaries.
3.26. No Other Representations. Except for the representations and warranties made in this
ARTICLE III or in ARTICLE IV or in the Transaction Documents, neither the Company, any Stockholder
Party nor any other Person (including any Subsidiary, any Equityholder or any director, officer, manager,
employee, Affiliate, advisor, agent or other representative of the Company, any Subsidiary or any
Equityholder) makes or has made to Parent or any other Person any representation or warranty, express or
implied, relating or with respect to this Agreement, the transactions contemplated thereby, the Company or
its Subsidiaries or their business, operations, properties, and liabilities or obligations, whether arising by
statute or otherwise in law, including any implied warranty of merchantability, fitness for a particular purpose
or otherwise. Except in the case of fraud or willful misconduct, neither the Company, any Subsidiary, any
Equityholder nor any of their respective stockholders, directors, officers, managers, employees, Affiliates,
advisors, agents or other representatives, will have or be subject to any liability to Parent or any other Person
resulting from the use by Parent or its Representatives of any financial information, financial projections,
forecasts, budgets or any other document or information furnished to Parent or any other Person (including
information in the “data site” maintained by the Company or provided in any formal or informal management
presentation); provided, however, that the foregoing is not intended to limit Parent’s or the Surviving
Corporation’s rights to recovery set forth in Article IX based on any breach of any of the representations and
warranties expressly made by the Company in this ARTICLE III.
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ARTICLE IV
REPRESENTATIONS AND WARRANTS OF THE STOCKHOLDER PARTIES
Each Stockholder Party hereby represents and warrants as to itself, himself or herself to Parent and
Merger Sub as of the date of this Agreement and as of the Closing as follows:
4.1.
Organization and Qualification of Stockholder Party. Such Stockholder Party is duly
organized, validly existing and in good standing (to the extent applicable) under the Laws of its jurisdiction
of incorporation or formation. Such Stockholder Party has all requisite power and authority to own its
properties and to carry on its business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the conduct of its business or the ownership, leasing, holding or
use of its properties makes such qualification necessary, except such jurisdictions where the failure to be so
qualified or licensed or in good standing would not have a Stockholder Material Adverse Effect.
4.2.
Ownership. Section 3.3(a) of the Disclosure Letter sets forth for such Stockholder Party
the Equity Securities of the Company held of record by such Stockholder Party. Such Stockholder Party has
valid and marketable title to all such Equity Securities free and clear of any Liens.
4.3.
Authority. Such Stockholder Party has all requisite power and authority to execute and
deliver this Agreement and to perform all of such Stockholder Party’s obligations hereunder. The execution,
delivery and performance by such Stockholder Party of this Agreement and the consummation of the
transactions contemplated to be performed by such Stockholder Party under this Agreement have been duly
authorized by all necessary and proper corporate action on the part of such Stockholder Party. This Agreement
constitutes the legal, valid and binding obligation of such Stockholder Party, enforceable against it in
accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar Laws relating to or affecting the enforcement of creditors’ rights in
general and by general principles of equity.
4.4.
No Conflict. The execution, delivery or performance by such Stockholder Party of this
Agreement, the consummation by such Stockholder Party of the transactions contemplated hereby and the
compliance by such Stockholder Party with the terms, conditions and provisions hereof does not and will
not, with or without the giving of notice or the lapse of time or both, conflict with, result in a breach of the
terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation or a loss of rights under (a) such Stockholder Party’s Constitutional
Documents, each as amended to date; (b) any of the terms, conditions or provisions of any material Contract
with such Stockholder Party; or (c) any Law, License, Judgment, or other requirement to which such
Stockholder Party or any of such Stockholder Party’s properties or assets, are subject.
4.5.
No Legal Actions. There is no Legal Action pending or, to the knowledge of such Stockholder
Party, threatened, against or affecting such Stockholder Party or any of such Stockholder Party’s properties
or assets that could reasonably be expected to have a Stockholder Material Adverse Effect.
29
4.6.
Brokers’ and Finders’ Fees. Except as set forth in Section 3.25, no investment banker, broker,
finder or other intermediary is entitled to any fee or commission payable by the Company in connection with
the transactions contemplated by this Agreement based on arrangements made on behalf of such Stockholder
Party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company as of the date of this Agreement
and as of the Closing as follows:
5.1.
Organization of Parent and Merger Sub. Parent and Merger Sub are each corporations duly
organized, validly existing and in good standing under the Laws of the State of Delaware. Each of Parent
and Merger Sub has all requisite corporate power and authority to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the conduct of its business or the ownership, leasing, holding or use of its properties
makes such qualification necessary, except such jurisdictions where the failure to be so qualified or licensed
or in good standing would not have a Parent Material Adverse Effect.
5.2.
Authority. Each of Parent and Merger Sub has all requisite corporate power and authority
to execute and deliver this Agreement and to perform all of its obligations hereunder. The execution, delivery
and performance by each of Parent and Merger Sub of this Agreement and the consummation of the
transactions contemplated to be performed by them under this Agreement have been duly authorized by all
necessary and proper corporate action on its part. This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance with its respective terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws
relating to or affecting the enforcement of creditors’ rights in general and by general principles of equity.
5.3.
No Conflict. The execution, delivery or performance by Parent and Merger Sub of this
Agreement, the consummation by Parent and Merger Sub of the transactions contemplated hereby and the
compliance by Parent and Merger Sub with the terms, conditions and provisions hereof does not and will
not, with or without the giving of notice or the lapse of time or both, (a) conflict with Parent’s or Merger
Sub’s respective Constitutional Documents, each as amended to date, or (b) result in a material breach of
the terms, conditions or provisions of, or constitute a material default, a material event of default or an event
creating rights of acceleration, termination or cancellation or a loss of material rights under (i) any of the
terms, conditions or provisions of any material Contract with Parent or Merger Sub, or (ii) any Law, License,
Judgment or other requirement to which Parent or Merger Sub, or any of their respective properties or assets
are subject.
5.4.
Consents; Stockholder Approval. No consent, waiver, approval, Judgment or authorization
of, or registration, declaration or filing with, or notice to any Governmental Entity or other Person is required
by, or with respect to, Parent or Merger Sub in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for (a) the affirmative vote of Parent,
as the sole stockholder of Merger Sub,
30
which shall be given immediately following the execution of this Agreement, (b) the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware, (c) notices and filings as may be required
under the HSR Act and (d) any filings that are required under any applicable federal or state securities Laws.
Without limiting the generality of the foregoing, no vote or consent of the holders of any class or series of
capital stock of Parent is necessary to approve this Agreement or the Merger.
5.5.
No Legal Actions. There is no Legal Action pending or, to the knowledge of Parent,
threatened, against or affecting Parent or Merger Sub or any of their properties or assets that could reasonably
be expected to have a Parent Material Adverse Effect.
5.6.
Ownership and Activities of Merger Sub. Parent owns all of the issued and outstanding
shares of capital stock of Merger Sub. Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and, except for obligations or liabilities incurred in connection
with its incorporation or organization and the transactions contemplated by this Agreement, Merger Sub has
not incurred, directly or indirectly, any obligations or liabilities or engaged in any business activities of any
type or kind whatsoever or entered into any agreements or arrangements with any Person.
5.7.
Financing. Parent has, as of the date of this Agreement, and will have at the Effective Time,
sufficient funds and/or the ability to borrow sufficient funds to pay the amounts required to be paid by Parent
pursuant to Sections 2.3, 2.4 and 2.5 and to pay all related fees and expenses to be paid by Parent at Closing.
Parent’s and Merger Sub’s obligations under this Agreement are not subject to any condition regarding
Parent’s or Merger Sub’s ability to obtain financing to enable Parent to meet its obligations hereunder.
5.8.
Solvency. Assuming the satisfaction of the conditions set forth in Section 7.2(a), immediately
after giving effect to the consummation of the Merger and the other transactions contemplated by this
Agreement, the Surviving Corporation (on a consolidated basis with its Subsidiaries) (i) will be able to pay
its debts (including a reasonable estimate of the amount of all contingent liabilities) as they become due and
payable, (ii) will own property which has a fair saleable value greater than the amounts required to pay its
debts (including a reasonable estimate of the amount of all contingent liabilities), and (iii) will have adequate
capital to carry on its business. No transfer of property is being made and no obligation is being incurred
in connection with the transactions contemplated by this Agreement with the intent to hinder, delay or defraud
current creditors of the Company or any of its Subsidiaries, or creditors of the Surviving Corporation or any
of its Subsidiaries.
5.9.
Acknowledgment. Parent and Merger Sub acknowledge that (a) except for the
representations and warranties made by the Company in ARTICLE III or in any Transaction Documents,
neither the Company nor any other Person (including any Subsidiary, any Equityholder or any director,
officer, manager, employee, Affiliate, advisor, agent or other representative of the Company, any Subsidiary
or any Equityholder) makes or has made to Parent or any other Person any representation or warranty, express
or implied, relating or with respect to this Agreement, the transactions contemplated thereby, the Company
or its Subsidiaries or their business, operations, properties, and liabilities or obligations, whether
31
arising by statute or otherwise in law, including any implied warranty of merchantability, fitness for a
particular purpose or otherwise.
5.10. Brokers’ and Finders’ Fees. No investment banker, broker, finder or other intermediary is
entitled to any fee or commission payable by the Company or any Equityholder in connection with the
transactions contemplated by this Agreement based on arrangements made on behalf of Parent or Merger
Sub.
5.11. No Other Representations. Except for the representations and warranties contained in this
ARTICLE V or in any other Transaction Document, neither Parent nor Merger Sub, nor any other Person
acting on their behalf, makes or has made any representation or warranty, express or implied. Neither Parent
nor Merger Sub has made any representation or warranty, expressed or implied, as to the accuracy or
completeness of any information regarding Parent or Merger Sub or otherwise, other than those
representations and warranties expressly made in this ARTICLE.
ARTICLE VI
COVENANTS
6.1.
Conduct of Business. Until the earlier to occur of the Closing and the termination of this
Agreement in accordance with its terms, except as (a) expressly contemplated by this Agreement, (b) set
forth on Section 6.1 of the Disclosure Letter, or (c) consented to in writing by Parent (which consent shall
not be unreasonably withheld or delayed), the Company shall, and shall cause each of its Subsidiaries to (1)
carry on their respective businesses in the ordinary course in all material respects consistent with past practice,
(2) use commercially reasonable efforts to keep its business and operations intact, retain its present officers
and employees and preserve its material rights, franchises, goodwill and relations with its clients, customers,
lessors, suppliers and others with whom it does business so that they will be preserved after the Closing, (3)
use commercially reasonable efforts to conduct their business in material compliance with all Applicable
Laws, and (4) use commercially reasonable efforts to conduct their business in accordance with the terms
and conditions of any Material Contract. Without limiting the generality of the foregoing, except as
(a) expressly contemplated by this Agreement, (b) set forth on Section 6.1 of the Disclosure Letter or (c)
consented to in writing by Parent, the Company shall not, and shall not permit any of its Subsidiaries to
directly or indirectly:
Documents or any of their outstanding securities;
(i)
amend the Company’s or any of its Subsidiaries’ respective Constitutional
(ii)
declare or set aside any dividend that is not paid prior to the Closing;
(iii)
adjust split, combine, subdivide or reclassify any Equity Interests of the
Company or any of its Subsidiaries;
(iv)
except for the issuance of the Reserved Equity Interests, a true and complete
list of which, as of the date of this Agreement, has been made available to Parent, and as provided in the
Company Equity Incentive Plan, authorize for issuance, issue, sell, deliver, transfer, dispose of or encumber
or agree or commit to any such actions, any Equity Interests in
32
the Company or any of its Subsidiaries, or any security convertible into, exchangeable for, or evidencing
the right to subscribe for or acquire, any Equity Interests in the Company or any of its Subsidiaries;
otherwise acquire any Equity Interest of the Company or any of its Subsidiaries;
(v)
redeem, purchase or otherwise acquire, or offer to redeem, purchase or
(vi)
sell, lease, transfer, license, mortgage, pledge or otherwise dispose of or
encumber, except for any Permitted Liens, any of the properties or assets (including Equity Interests of any
Person) of the Company or any of its Subsidiaries other than sales of properties or assets (other than Equity
Securities in any Subsidiaries of the Company) with a fair market value of less than $250,000 in the ordinary
course of business consistent with past practice;
the aggregate;
(vii) make or commit to make any capital expenditures in excess of $50,000 in
acquire or agree to acquire any business or Person in any manner, including
by merging or consolidating with such business or Person, or acquiring or agreeing to acquire the Equity
Interests or assets of such business or Person;
(viii)
adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the Company or any of its
Subsidiaries;
(ix)
date of this Agreement except as required by changes in GAAP;
(x)
change its auditor or change its methods of accounting in effect as of the
(xi)
make, change or revoke any material Tax election, amend any material Tax
Return, settle or compromise any material income Tax liability, Tax claim or Tax assessment, adopt or change
any of its methods of accounting with respect to Taxes, enter into any closing agreement, settle, compromise
or consent to any Tax claim, take any affirmative action to surrender any right to claim a refund of Taxes,
or consent to any extension or waiver of the limitation period applicable to any Tax claim;
(xii)
settle, pay, discharge or compromise, or agree to settle, pay, discharge or
compromise, any Legal Action, except for any such settlement or compromise in the ordinary course of
business consistent with past practice that is not material to the operations or financial condition of the
Company and its Subsidiaries taken as a whole and does not include any equitable relief applicable to any
period of time after the Closing;
(xiii)
(i) enter into, amend, modify or renew any Contract regarding employment,
consulting, severance or similar arrangements with any of its directors or officers or Key Employees, (ii)
grant any salary, wage or other increase in compensation to any Key Employee or to any other Employees
other than in the ordinary course of business consistent with past practice, or (iii) modify any employee
benefit under a Company Employee Plan except as may be required by Law, provided that the Company
may take all actions necessary to terminate or cause to lapse, immediately prior to the Effective Time, any
repurchase rights of the Company that remain applicable to any shares of Common Stock;
33
pay any severance or termination pay to any officers, directors or managers
(as applicable), or employees of the Company or any of its Subsidiaries other than in the ordinary course of
business consistent with past practice or as required by Contracts existing as of the date of this Agreement;
(xiv)
than as required by this Agreement.
(xv)
establish, adopt, enter into, or terminate any Company Employee Plan other
of, any Affiliate or any directors, former directors, officers or stockholders of any Affiliate;
(xvi)
enter into any material transaction or arrangement with, or for the benefit
(xvii) hire or terminate any Key Employee;
under the WARN Act or engage in any action or conduct that triggers application of the WARN Act;
(xviii) effect or permit a “mass layoff” or “plant closing” as those terms are defined
representative of the Employees;
(xix)
recognize any labor union or any other association as the bargaining
enter into any collective bargaining agreement, or negotiations for a
collective bargaining agreement, with any labor union or other association with respect to the Employees;
(xx)
enter into any agreement or arrangement that limits or otherwise restricts
the Company or any of its Subsidiaries or any of their present or future Affiliates or any successor thereto
from engaging or competing in any line of business and/or in any location;
(xxi)
(xxii) enter into, amend, modify or terminate any Material Contract or Real
Property Lease or otherwise waive, release or assign any material rights, claims or benefits thereunder, except
with respect to Material Contracts disclosed or required to be disclosed under clauses (i), (ii), (v), or (vii) of
Section 3.13(a) of the Disclosure Letter in the ordinary course of business consistent with past practice;
(xxiii) do any act or knowingly omit to do any act whereby any material Company
Intellectual Property may become invalidated, abandoned, unmaintained, unenforceable or dedicated to the
public domain;
coverage in effect as of the date hereof; or
(xxiv) fail to maintain in full force and effect any policies or binders of insurance
(xxv) agree, authorize or commit to do any of the foregoing.
6.2.
Access to Information; Confidentiality. Until the earlier to occur of the Closing and the
termination of this Agreement in accordance with its terms, Parent and its Representatives (including any
financing sources and their respective representatives) shall continue to have reasonable access during normal
business hours to the facilities, books and
34
records (consistent with Applicable Law regarding privacy) of the Company and its Subsidiaries to conduct
such inspections (including non-invasive environmental due diligence activities) as Parent may reasonably
request. Any inspection pursuant to this Section 6.2 will be conducted in such a manner so as not to interfere
unreasonably with the conduct of the Business and in no event will any provision hereof be interpreted to
require the Company or its Subsidiaries to permit any inspection, or to disclose any information, that the
Company and its legal representatives determine in good faith may waive any attorney-client or similar
privilege that it or its Subsidiaries may hold or conflict with any of its obligations, or the obligations of its
Subsidiaries, to a third party with respect to confidentiality. The foregoing notwithstanding, neither Parent
nor Merger Sub, nor any of their respective Representatives, shall contact any Employee, landlord, customer,
supplier or shareholder of the Company or of any of its Subsidiaries (other than such Persons set forth on
Section 6.2 of the Disclosure Letter) without the prior written consent of the Company (which consent shall
not be unreasonably withheld, conditioned or delayed); it being acknowledged that any and all such contacts
will be arranged by and coordinated with the Company and the Company shall cooperate in good faith with
Parent to facilitate such contact as may be reasonably requested by Parent. All information exchanged
pursuant to this Section 6.2 shall be subject to that certain Confidentiality Agreement between Parent and
the Company dated as of January 7, 2013 (the “Confidentiality Agreement”).
6.3.
Satisfaction of Closing Conditions; Regulatory Matters.
(a)
Until the earlier to occur of the Closing and the termination of this Agreement in
accordance with its terms, and subject to the terms and conditions of this Agreement, each of the Company
and Parent shall use commercially reasonable efforts to take or cause to be taken as promptly as reasonably
practicable all actions and to do or cause to be done as promptly as reasonably practicable all things necessary
under the terms of this Agreement or under Applicable Law to cause the satisfaction of the conditions set
forth in ARTICLE VII and to consummate the transactions contemplated by this Agreement, including using
their respective commercially reasonable efforts to obtain all Consents of all Governmental Entities or third
parties that may be or become necessary in connection with its execution and delivery of, and the performance
of its obligations pursuant to, this Agreement, and the Parties shall cooperate with each other with respect
to each of the foregoing; provided, however, that (i) such use of commercially reasonable efforts shall not
require any Party to make any payment to obtain any Consent from a Governmental Entity or other third
party required in order to consummate the transactions contemplated hereby (other than in connection with
the HSR Filing), and (ii) neither the Company nor any of its Subsidiaries shall agree orally or in writing to
any agreement or understanding affecting the Company, any of its Subsidiaries, or any of their respective
assets as a condition for obtaining any Consents from any Governmental Entity or other third party without
obtaining the prior written consent of Parent.
(b)
The Company shall give (or shall cause its Subsidiaries to give) any notices to third
parties, and use, and cause its Subsidiaries to use, commercially reasonable efforts to obtain any third-party
consents, (i) necessary to consummate the transactions contemplated hereby or (ii) required to prevent a
Company Material Adverse Effect from occurring prior to or after the Closing; provided, however, that the
Company and Parent shall coordinate and reasonably cooperate in determining whether any actions, notices,
consents, approvals, or waivers are required to be given or obtained, or should be given or obtained, from
35
parties to any Material Contract in connection with the consummation of the transactions contemplated
hereby and seeking any such actions, notices, consents, approvals, or waivers.
(c)
From the date hereof until the Closing Date, each of Parent and the Company shall
promptly notify the other in writing of any pending, or to the Company’s Knowledge or the knowledge of
Parent (as the case may be), threatened action, suit, arbitration, or other proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking material damages in connection with
the transactions contemplated hereby or (ii) seeking to restrain or prohibit the consummation of the
transactions contemplated hereby or otherwise limit in any material respect the right of Merger Sub to own
or operate all or any portion of the business or assets of the Company or any of its Subsidiaries.
(d)
Parent and the Company agree to file a Notification and Report Form and
documentary materials in respect of the transactions contemplated by this Agreement with the United States
Federal Trade Commission and the Antitrust Division of the United States Department of Justice as promptly
as practicable after the date hereof and in no event more than ten (10) Business Days after the date of this
Agreement (the “HSR Filing”). All filing fees payable with respect to such filings shall be paid by Parent.
Parent and the Company agree to promptly file any other report required by any other Governmental Entity
relating to antitrust matters, and to promptly make any other filings or submissions required under the HSR
Act. The Company and Parent shall furnish to the other such necessary information and reasonable assistance
as the other may request in connection with its preparation of any filing or submission which is necessary
under the HSR Act. Each of the Company and Parent shall promptly inform the other Party of any material
communication received by such Party from any Governmental Entity in respect of the HSR Filing. Each
of the Company and Parent shall (i) use its commercially reasonable efforts to comply as expeditiously as
possible with all requests of any Governmental Entity for additional information and documents requested
under the HSR Act; and (ii) not (A) extend any waiting period under the HSR Act, or (B) enter into any
agreement with any Governmental Entity not to consummate the transactions contemplated by this
Agreement, except, in each case, with the prior consent of the other.
(e)
Subject to Applicable Law and any applicable confidentiality restrictions, Parent
and its counsel, on the one hand, and the Company and its counsel, on the other hand, shall have the right
to review (in advance to the extent practicable) any information relating to the other that appears in any filing
made with, or written materials submitted to, any Governmental Entity in connection with the Merger or the
other transactions contemplated by this Agreement, provided, however, that nothing contained herein shall
be deemed to provide any Party with a right to review any such information provided to any Governmental
Entity on a confidential basis (including valuation material) in connection with the Merger or the other
transactions contemplated by this Agreement. The Parties may also, as each deems reasonably necessary,
designate any competitively sensitive material provided to the other under this Section 6.3 and Section 6.2
as “outside counsel only.” Such materials and the information contained therein shall be given only to the
outside legal counsel of the recipient and will not be disclosed by such outside counsel to employees, officers,
or directors of the recipient unless express permission is obtained in advance from the source of the materials
or its legal counsel.
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(f)
Notwithstanding the foregoing, nothing in this Section 6.3 shall require, or be
construed to require, Parent, Merger Sub, or any of their respective Affiliates to agree to (i) sell, hold separate,
divest, discontinue or limit, before or after the Closing Date, any assets, businesses or interests of Parent,
Merger Sub, the Company (pre-Closing), the Surviving Corporation (post-Closing) or any of their respective
Affiliates; (ii) any conditions relating to, or changes or restrictions in, the operations of any such assets,
businesses or interests which, in either case, could reasonably be expected to result in a Company Material
Adverse Effect or materially and adversely impact the economic or business benefits to Parent of the
transactions contemplated by this Agreement; or (iii) any material modification or waiver of the terms and
conditions of this Agreement.
6.4.
Indemnification of Officers and Directors.
(a)
The Surviving Corporation shall, and shall cause each of its Subsidiaries to,
indemnify and hold harmless each present and former director or manager (as applicable), officer, fiduciary
and agent of the Company and of each of its Subsidiaries (collectively, “Covered Persons”), respectively, to
the same extent as such Covered Persons are indemnified as of the date hereof by the Company and each
such Subsidiary pursuant to the Constitutional Documents of the Company and each such Subsidiary,
respectively, against all costs and expenses (including attorneys’ fees and expenses), judgments, fines, losses,
claims, damages, liabilities and settlement amounts paid in connection with any Legal Action (whether such
Legal Action arises before or after the Effective Time but with respect to any act or omission of such Covered
Person occurring prior to the Effective Time) arising out of or pertaining to any action or omission in their
capacity as an officer, director or manager (as applicable), fiduciary or agent of the Company or one of its
Subsidiaries prior to the Effective Time, and which Legal Action is first filed, brought and asserted before
the date that is six (6) years after the Effective Time. In the event of any such Legal Action, the Surviving
Corporation shall, and shall cause each of its Subsidiaries to, advance, pay or reimburse the fees and expenses
of counsel selected by the Covered Persons to the same extent and in the same manner as provided under
the Constitutional Documents of the Company and each such Subsidiary, respectively, as of the date hereof
and to cooperate in the defense of any such Legal Action with such counsel; provided that such counsel is
reasonably satisfactory to the Surviving Corporation; and provided, further, that in the event that any claim
for indemnification or for the advancement, payment or reimbursement of expenses is asserted or made
within such six (6)-year period, all rights to indemnification or the advancement, payment or reimbursement
of expenses in respect of such claim shall continue until the disposition of such claim.
(b) Without limiting the obligations set forth in Section 6.4(a), for a period of six (6)
years following the Effective Time, (i) the Surviving Corporation shall not, and shall cause each of its
Subsidiaries not to, make any changes to the provisions of their Constitutional Documents or to the provisions
of the employment agreements and indemnification agreements with Covered Persons listed respectively in
Sections 3.13(a)(iii) and 3.13(a)(x) the Disclosure Letter or provided to Parent prior to the date hereof, in
each case relating to the indemnification and exculpation of any Covered Person, that would adversely affect
the right of such Covered Person to claim indemnification from the Surviving Corporation or its Subsidiaries
under the terms of such Constitutional Documents, employment agreements or indemnification agreements
as in effect on the date hereof for acts taken prior to the Effective Time, and (ii) the Surviving
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Corporation shall, and shall cause each of its Subsidiaries to, honor all such indemnification and exculpation
obligations thereunder (including with respect to the advancement of expenses).
(c)
At or prior to the Closing, the Company shall purchase a prepaid noncancellable
run-off directors’ and officers’ liability insurance policy covering the Covered Persons for a period of six
(6) years following the Closing Date with coverage in an amount and scope at least as favorable as the
existing coverage of the Company and its Subsidiaries as of the date of this Agreement with a deductible
not more than the deductible under the existing coverage.
(d)
The provisions of this Section 6.4 are intended to be for the benefit of, and will be
enforceable by, as applicable, each Covered Person and the representatives of each Covered Person. For a
period of six (6) years following the Closing, in the event the Surviving Corporation or any of its Subsidiaries
merges or consolidates with or transfers or assigns all or substantially all of its assets to any other Person,
then proper provision shall be made by the Surviving Corporation so that such continuing or surviving
corporation or entity or transferee of such assets, as the case may be, shall assume all of the applicable
obligations set forth in this Section 6.4.
The rights under this Section 6.4 shall be in addition to any rights that any Covered
Person may have at common law or otherwise and shall remain in full force and effect following the Closing.
(e)
6.5.
Employees; Benefit Plans.
(a)
Parent shall provide to the employees of the Surviving Corporation and its
Subsidiaries benefit plans, programs and arrangements with benefits (other than equity-based awards) that
are substantially similar in the aggregate to those provided to similarly situated employees of Parent as of
the Closing Date. For purposes of determining eligibility to participate or levels of benefits or entitlement
to benefits under Parent’s or the Surviving Corporation’s benefit plans, programs and arrangements (“Parent
Benefit Plans”), each such employee shall be credited with his or her years of service with the Company or
its Subsidiaries prior to the Closing Date (except to the extent such service credit would result in a duplication
of benefits for the same period of service) and any pre-existing condition, actively-at-work, or similar
requirement under any such benefit plans, programs or arrangements shall be waived by the plan sponsor
with respect to such employees to the extent allowed thereunder and under Applicable Law.
(b)
The Company shall permit Parent and its Representatives to perform due diligence
with respect to the 401(k) plan of the Company and its Subsidiaries (the “401(k) Plan”), including providing
Parent with (i) access to all benefit plan administrators, record keepers, custodians, agents and advisers, (ii)
evidence of the 401(k) Plan’s tax-qualified status and timely IRS Form 5500 filings, (iii) such documentation
that will allow Parent to determine the amount, if any, of fees, loads or other charges that will be triggered
by the ceasing of new contributions to the 401(k) Plan or otherwise by virtue of the transactions contemplated
hereby and (iv) such other documentation as Parent shall reasonably request with respect to the 401(k) Plan.
If, and only if, requested in writing by Parent at least five (5) Business Days prior to the
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Closing Date, the Company shall, and shall cause its Subsidiaries to, take all actions necessary or appropriate
to terminate the 401(k) Plan not later than the day prior to the Closing Date and, in connection therewith,
the Company shall, not later than the day prior to the Closing Date:
(i)
(1) amend the 401(k) Plan to fully vest all accounts of all participants in
the 401(k) Plan and to provide for the distribution of all such accounts, and (2) amend the 401(k) Plan to
bring it into compliance with current Applicable Law (the form and substance of which amendments shall
be subject to the prior review of Parent); and
deliver to Parent a duly executed plan amendment and resolutions of the
Company’s board of directors reflecting the termination of the 401(k) Plan and such related amendments to
the 401(k) Plan (the form and substance of which documents shall be subject to the prior review of Parent).
(ii)
(c)
Nothing in this Section 6.5 shall (i) create any third-party beneficiary or other rights
in any Employee or other service provider of the Company or any of its Subsidiaries, including rights in
respect of any benefits that may be provided, directly or indirectly, under any Company Benefit Plan or
Parent Benefit Plan, (ii) be construed as an amendment, waiver or creation of or limitation on the ability to
amend or terminate any Company Benefit Plan or Parent Benefit Plan, or (iii) be interpreted as requiring the
Company, the Surviving Corporation, Parent or any Affiliate of any of the foregoing to continue to employ
any particular Employee or other service provider of the Company or any of its Subsidiaries for any specified
period of time.
6.6.
Preservation of Records. Parent agrees that it shall not, for a period of at least six (6) years
following the Closing Date, destroy or cause to be destroyed, or permit the Surviving Corporation or any of
its Subsidiaries to destroy or cause to be destroyed, any material books or records relating to the pre-Closing
operations of the Company or any of its Subsidiaries without first obtaining the consent of the Equityholders
Representative (or providing to the Equityholders Representative notice of such intent and a reasonable
opportunity to copy such books or records, at the Equityholders’ expense, at least thirty (30) days prior to
such destruction).
6.7.
Outstanding Letters of Credit. Parent acknowledges and agrees that the violation of any
Letters of Credit Agreement as a result of any failure of Parent to replace any Letter of Credit in connection
with the termination of the Revolving Credit Facility shall not constitute a breach of any representation or
warranty under this Agreement, cause any condition precedent set forth in Section 7.2 not to be satisfied or
give rise to any claim for indemnification under Section 9.2(a).
6.8.
Director Resignations. Prior to the Closing Date, the Company shall cause each member of
the Board and the board of directors or managers of its Subsidiaries to execute and deliver a letter, which
shall not be revoked or amended prior to the Closing, effectuating his or her resignation as a member of the
Board or board of directors or managers of one of its Subsidiaries, as the case may be, effective immediately
prior to, and conditional on, the Closing.
6.9.
Notice of Certain Events. From the date hereof until the Closing, the Company shall give
prompt written notice to Parent, and Parent shall give prompt written notice to the Company, of the following:
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(a)
Any fact, circumstance, event or action the existence, occurrence or taking of which
(i) has had, or could reasonably be expected to have, individually or in the aggregate, with respect to the
Company, a Company Material Adverse Effect, or, with respect to Parent, a Parent Material Adverse Effect
(ii) has resulted in, or could reasonably be expected to result in, any representation or warranty made by
such Party not being true and correct in any material respect or (iii) has resulted in, or could reasonably be
expected to result in, the failure of any of the conditions of such Party set forth in Section 7.1, Section 7.2
or Section 7.3 to be satisfied.
(b)
Any notice or other communication to such Party from any Person alleging that the
consent of such Person is or may be required in connection with the transactions contemplated by this
Agreement.
(c)
Any notice or other communication to such Party from any Governmental Entity
in connection with the transactions contemplated by this Agreement.
(d)
Any Legal Actions commenced or, to the Company’s Knowledge or Parent’s
knowledge, threatened against, relating to or involving or otherwise affecting such Party that, if pending on
the date of this Agreement, would have been required to have been disclosed pursuant to Sections 3.14, 4.5
or 5.5 that relates to the consummation of the transactions contemplated by this Agreement.
Parent’s or the Company’s receipt of information pursuant to this Section 6.9 shall not operate as a waiver
or otherwise affect any representation, warranty or agreement given or made by the Company or Parent,
respectively, in this Agreement and shall not be deemed to amend or supplement the Disclosure Letter.
6.10. No Solicitation of Other Bids.
(a)
Neither the Company nor any Stockholder Party shall, and shall not authorize or
permit any of their respective Affiliates or Representatives to, directly or indirectly, (i) encourage, solicit,
initiate, facilitate or continue inquiries regarding an Acquisition Proposal; (ii) enter into discussions or
negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or
(iii) enter into any agreements or other instruments (whether or not binding) regarding an Acquisition
Proposal. The Company and each Stockholder Party shall immediately cease and cause to be terminated,
and shall cause its Affiliates and all of its and their Representatives to immediately cease and cause to be
terminated, all existing discussions or negotiations with any Persons conducted heretofore with respect to,
or that could lead to, an Acquisition Proposal.
(b)
The Company and each Stockholder Party agrees that the rights and remedies for
noncompliance with this Section 6.10 shall include having such provision specifically enforced by any court
having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall
cause irreparable injury to Parent and that money damages would not provide an adequate remedy to Parent.
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6.11. Employee Non-Solicit.
(a)
Each Stockholder Party agrees that during the period ending on the third (3rd)
anniversary of the Closing Date, such Stockholder Party shall not, and shall cause its Affiliates (other than
those of its portfolio companies that have not been (i) provided any employee information or other confidential
information relating to the Company and its Subsidiaries, or (ii) purposely influenced or caused to engage
in conduct that would otherwise violate this Section 6.11(a)) not to, in any manner, directly or indirectly,
induce or attempt to induce any member of the senior management team or department head of the Company
or any of its Subsidiaries or any Key Employee to terminate or abandon his or her employment or engagement
for any purpose whatsoever. Notwithstanding the foregoing, nothing contained herein shall preclude the
hiring of any such Person (i) who responds to a general solicitation of employment through an advertisement
not targeted specifically at the Company or any of its Subsidiaries or their respective employees, (ii) who
contacts a Stockholder Party on his or her own initiative without any solicitation by such Stockholder Party
or (iii) who has been terminated by the Company or any of its Subsidiaries after the Closing or who has not
been employed by the Company or any of its Subsidiaries, in each case for a period of at least six (6) months
prior to such solicitation.
(b)
If, at any time of enforcement of this Section 6.11, a court or an arbitrator holds
that the restrictions stated herein are unreasonable under circumstances then existing, the Parties agree that
the maximum period, scope or geographical area reasonable under such circumstances shall be substituted
for the stated period, scope or area and that the court or arbitrator shall be allowed to revise the restrictions
contained herein to cover the maximum period, scope and area permitted by Applicable Law.
(c)
Without limiting the right of Parent to pursue all other legal and equitable rights
available to it for violation of this Section 6.11 by any of the Stockholder Parties or their Affiliates, it is
agreed that other remedies cannot fully compensate Parent or the Surviving Corporation for such a violation
and that Parent and the Surviving Corporation shall each be entitled to injunctive relief to prevent violation
or continuing violation thereof.
6.12. Transfer of Common Stock; Voting; Company Stockholder Approval.
(a)
Each Stockholder Party covenants that prior to the Closing, such Stockholder Party
shall not (i) sell, transfer, mortgage, pledge, otherwise dispose of or suffer to be imposed any Lien on any
share of Common Stock held by such Stockholder Party or (ii) grant to any Person (other than Parent) any
proxy or other right to vote any shares of Common Stock held by such Stockholder Party or over which such
Stockholder Party exercises voting power.
(b)
In order to consummate the Merger, the Company, acting through its board of
directors, shall, in accordance with Applicable Law, use its commercially reasonable efforts to obtain, prior
to the close of business on the second (2nd) Business Day following the date of this Agreement, pursuant
to an executed written consent, the Stockholder Approval. Promptly following receipt of such written consent,
the Company shall cause its Secretary to deliver a copy of such written consent to Parent.
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(c)
Each Stockholder Party hereby irrevocably waives any dissenters’ rights, appraisal
rights or similar right that they may have under Applicable Law, including under Section 262 of the DGCL,
in connection with the Merger and agrees not to assert any demands for appraisal with respect to the shares
of Common Stock held by such Stockholder Party. Upon approving the Merger, Sphere covenants to exercise
its Drag-Along Right (as defined in the Stockholder Agreement) pursuant to and in accordance with the
Section 3(c) of the Stockholder Agreement requiring the stockholders party to the Stockholder Agreement
to: (x) vote all of the shares of the Company’s capital stock owned by them in favor of adopting this Agreement
and approving the Merger and (y) waive any dissenters’ rights, appraisal rights or similar rights which they
may have under Applicable Law, including under Section 262 of the DGCL.
6.13. Bonus Payments. The Surviving Corporation shall maintain the management bonus plan of
the Company for fiscal year 2013 as in effect as of the date hereof and shall perform its obligations to pay
bonuses thereunder to the Persons eligible for bonuses under such plan in accordance with the terms of such
plan, which Persons and terms have been made available to Parent. The aggregate amount of all such bonuses
awarded under such plan shall not be less than the aggregate amount accrued for such bonuses and included
in the calculation of Closing Net Working Capital, as finally determined pursuant to Section 2.6(c), and all
such bonuses awarded shall be paid to the recipients no later than seventy-five (75) days following the
Closing.
6.14. NTP Payments. The Surviving Corporation shall cause KAO to perform its obligations to
cause NTP to make the NTP Payments when due pursuant to and in accordance with the NTP SPA.
6.15. Access to Assets. Each of the Stockholder Parties shall at all times following the Closing
maintain funds, or access to capital commitments from its fund investors, sufficient to meet its indemnification
obligations under this Agreement.
6.16. Section 280G of the Code. Prior to the Closing, the Company shall take such actions, in a
manner reasonably satisfactory to Parent, as may be necessary to cause a stockholder vote, that if approved,
would cause all payments made to any “disqualified individual” who has signed a 280G waiver that would
otherwise constitute “excess parachute payments” under Section 280G of the Code as a result of the Merger
to satisfy the stockholder approval exemption under Section 280G(b)(5)(A)(ii) of the Code, including
providing a form of waiver of payments or benefits to each individual who is a “disqualified individual” of
the Company and that may otherwise be entitled to receive “excess parachute payments” as a result of the
Merger (as those terms are defined under Section 280G of the Code) (a “280G Waiver”), preparing a Section
280G of the Code disclosure statement, and seeking the execution of the 280G Waiver and the requisite
stockholder approval.
6.17. Transfer of Title. The Company shall use its commercially reasonable efforts to transfer to
the Company or one of its Subsidiaries the title of any Owned Real Property that is not currently recorded
in the name of the Company or any of its Subsidiaries, which is set forth on Section 3.21 of the Disclosure
Letter, and to record with each applicable Governmental Entity each new deed reflecting the Company or
one of its Subsidiaries as the legal owner of such Owned Real Property as a result of such transfer of title,
in each case prior to the Closing. If any
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such transfer or recording has not been completed prior to the Closing, the Equityholders Representative
shall use its commercially reasonable efforts following the Closing to effect such transfer or recording as
promptly as reasonably practicable following the Closing.
6.18. Closing Bank Debt. The Company shall obtain, prior to the Closing, a payoff letter or payoff
letters with respect to the Closing Bank Debt, in form and substance reasonably acceptable to the Purchaser
(the “Payoff Letters”), which Payoff Letters shall indicate (a) the amount of Closing Bank Debt that is to be
repaid to the lenders thereunder at the Closing, and (b) that upon repayment of such amount that (i) the
Company and its Subsidiaries shall be relieved of any obligations thereunder, (ii) the Senior Credit Facilities
and related agreements shall be terminated (except for provisions thereunder that customarily survive
termination), and (iii) all of the Company’s and its Subsidiaries’ assets and properties shall be free from any
and all Liens (including mortgages) related thereto upon repayment of such amount.
6.19
Stockholder Termination of Agreements. Each Stockholder Party and the Surviving
Corporation agree that, effective as of the Closing, all agreements between such Stockholder Party or any
of its Affiliates and the Surviving Corporation and its Subsidiaries shall be terminated and each party thereto
shall be released from any and all obligations, claims, and causes of action against the other party thereto,
except in each case for payments which are specified, or any obligations that are required to be performed
on or after the Closing Date under, in each case, (i) this Agreement, the Promissory Note or the Mortgage
or (ii) the Freight Bill Processing and Services Agreement, dated August 1, 2011, by and between KAO and
Data2Logistics, LLC or the Sales Quote and Marketing Agreement for American Racing Custom Wheels,
dated as of January 31, 2013, between KAO and American Racing Custom Wheels.
6.20. Further Assurances. Following the Closing, each of the Parties shall, and shall cause their
respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and
assurances and take such further actions as may be reasonably required to carry out the provisions hereof
and give effect to the transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO THE CLOSING
7.1.
Conditions to Each Party’s Obligations. The obligations of the Company, on the one hand,
and Parent and Merger Sub, on the other hand, to consummate the Merger are subject to the fulfillment, on
or before the Closing Date, of the following conditions:
(a)
The waiting period under the HSR Act applicable to the transactions contemplated
by this Agreement shall have expired or early termination shall have been granted;
(b)
No Governmental Entity of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any temporary restraining order, initial or permanent injunction or other
Judgment or other legal restraint or prohibition that is in effect and prevents, enjoins or otherwise prohibits
the consummation of the Merger; and
(c)
The Stockholder Approval shall have been obtained.
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7.2.
Conditions to the Obligation of Parent and Merger Sub. The obligation of Parent and Merger
Sub to consummate the Merger is subject to the satisfaction, on or before the Closing Date, of each of the
following further conditions, any one or more of which may be waived in writing by Parent:
(a)
The representations and warranties contained in Section 3.1 (Organization and
Qualification of the Company), Section 3.2 (Organization and Qualification of Subsidiaries), Section 3.3
(Capitalization), Section 3.4 (Authority), Section 3.6 (Consents; Stockholder Approval), Section 3.25
(Brokers’ and Finders’ Fees), Section 4.1 (Organization and Qualification of Stockholder Parties), Section
4.2 (Ownership), Section 4.3 (Authority) and Section 4.6 (Brokers’ and Finders’ Fees) shall be true and
correct in all respects at and as of the date hereof and at and as of the Closing Date as if made at and as of
the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in
which case such representation and warranty shall be true and correct as of such earlier date or dates). All
other representations and warranties of the Company contained in this Agreement and in any certificate or
other writing delivered by the Company pursuant hereto shall be true and correct in all respects (disregarding
any “material,” “in all material respects,” “Company Material Adverse Effect,” or similar qualifications
contained therein) at and as of the date hereof and at and as of the Closing Date, as if made at and as of such
date (except to the extent such representations and warranties speak as of a specific date, in which case such
representation and warranty shall be true and correct as of such earlier date or dates) and except for those
failures to be so true and correct as would not reasonably be expected to have, in the aggregate, a Company
Material Adverse Effect and Parent shall have received a certificate signed on behalf of the Company by the
Chief Executive Officer of the Company to the foregoing effect.
(b)
The Company shall have performed and complied in all material respects with all
of its obligations hereunder required to be performed or complied with by it on or prior to the Closing Date
and Parent shall have received a certificate signed on behalf of the Company by the Chief Executive Officer
of the Company to the foregoing effect.
(c)
The Company shall have obtained and delivered to Parent the Consents set forth on
Section 7.2(c) of the Disclosure Letter.
(d)
Parent shall have received from the Company (i) a certificate of good standing of
the Company as of a recent date from the Secretary of State of the State of Delaware; and (ii) certificates of
good standing of each of the Company’s Subsidiaries as of a recent date from the applicable Secretary of
State of its jurisdiction of incorporation or organization.
(e)
Parent shall have received from the Company certified copies of the certificate of
incorporation of the Company and the certificates of incorporation or formation of its Subsidiaries, in each
case dated as of a recent date.
(f)
Parent shall have received a certificate of the Secretary of the Company certifying
true and complete copies of (i) the by-laws of the Company, as in effect on the Closing Date; (ii) the resolutions
of the Board authorizing the execution, delivery and performance of this Agreement and the transactions
contemplated hereby; and (iii) the Stockholder Approval.
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(g)
The Transaction Documents that the Company or any of its Subsidiaries or any
Stockholder Party is party to shall have been executed and delivered by the Company and such Subsidiaries
and Stockholder Parties and true and complete copies thereof shall have been delivered to Parent.
(h)
Parent shall have received customary pay-off letters or similar acknowledgments
of the discharge of the Closing Bank Debt and any other Indebtedness of the Company and its Subsidiaries
to be paid off at Closing, setting forth the amount owed as of the Closing Date and indicating that upon
payment of such amount, such Indebtedness will be discharged in full and all related Liens, including
mortgage Liens (other than Permitted Liens) will be released and removed.
(i)
The Company shall have delivered to Parent a certificate pursuant to Treasury
Regulations Section 1.1445-2(b) that each Stockholder is not a foreign person within the meaning of Section
1445 of the Code.
(j)
No Company Material Adverse Effect or Stockholder Material Adverse Effect shall
have occurred since the date of this Agreement, nor shall any event or events have occurred that, individually
or in the aggregate, with or without the lapse of time, could reasonably be expected to result in a Company
Material Adverse Effect or Stockholder Material Adverse Effect.
7.3.
Conditions to the Obligation of the Company. The obligation of the Company to consummate
the Merger is subject to the satisfaction, on or before the Closing Date, of each of the following further
conditions, any one or more of which may be waived in writing by the Company:
(a)
The representations and warranties of Parent and Merger Sub contained in Section
5.1 (Organization of Parent and Merger Sub), Section 5.2 (Authority), and Section 5.10 (Brokers’ and Finders’
Fees) shall be true and correct in all respects at and as of the date hereof and at and as of the Closing Date
as if made at and as of the Closing Date (except to the extent such representation and warranty speaks as of
an earlier date, in which case such representation and warranty shall be true and correct as of such earlier
date or dates). All other representations and warranties of Parent and Merger Sub contained in this Agreement
and in any certificate or other writing delivered by Parent or Merger Sub pursuant hereto shall be true and
correct in all respects (disregarding any “material,” “in all material respects,” “Material Adverse Effect,” or
similar qualifications contained therein) at and as of the date hereof and at and as of the Closing Date, as if
made at and as of such date, except to the extent such representations and warranties speak as of a specific
date and except for those failures to be so true and correct as would not reasonably be expected to have, in
the aggregate, a Parent Material Adverse Effect and the Company shall have received a certificate signed
on behalf of Parent and Merger Sub by the Chief Executive Officer of Parent to the foregoing effect.
(b)
Parent and Merger Sub shall have performed and complied in all material respects
with all of their respective obligations hereunder required to be performed or complied with by them on or
prior to the Closing Date and the Company shall have received a certificate
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signed on behalf of Parent and Merger Sub by the Chief Executive Officer of Parent to the foregoing effect.
(c)
No Parent Material Adverse Effect shall have occurred since the date of this
Agreement, nor shall any event or events have occurred that, individually or in the aggregate, with or without
the lapse of time, could reasonably be expected to result in a Parent Material Adverse Effect.
(d)
The Company shall have received a certificate of the Secretary of Parent certifying
true and complete copies of the resolutions of the board of directors of Parent authorizing the execution,
delivery and performance of this Agreement and the transactions contemplated hereby.
(e)
The Company shall have received from Parent certificates of good standing of Parent
and Merger Sub as of a recent date from the Secretary of State of the State of Delaware.
(f)
The Transaction Documents that Parent or Merger Sub are party to shall have been
executed and delivered by Parent or Merger Sub and true and complete copies thereof shall have been
delivered to the Company.
ARTICLE VIII
TERMINATION
8.1.
Termination. This Agreement may be terminated and the Merger abandoned at any time
prior to the Closing (in all cases, by action of the respective boards of directors of the terminating Party or
Parties) regardless of whether this Agreement and/or the Merger have been approved by the Stockholders:
(a)
by written agreement of the Company and Parent;
(b)
by either Parent or the Company if:
(i)
the Closing has not occurred by January 31, 2014 (or such later date as shall
be mutually agreed to in writing by the Company, the Equityholders Representative and Parent) (the “Outside
Date”), provided, however, that the right to terminate this Agreement under this Section 8.1(b)(i) shall not
be available to any Party whose action or failure to fulfill any obligation hereunder has been the cause of,
or resulted in, the failure of the Closing to occur on or before the Termination Date and such action or failure
constitutes a breach of this Agreement;
(ii)
if a court of competent jurisdiction or other Governmental Entity shall have
issued a final non-appealable order or taken any other action prohibiting the consummation of the Merger;
provided, however, that the terms of this Section 8.1(b)(ii) shall not be available to the terminating Party
(A) if such order or action was caused by the action or the failure to act of the terminating Party and such
action or failure constitutes a breach of this Agreement by such Party or (B) such terminating Party did not
use its commercially reasonable
46
efforts to oppose any such order or action or to have such governmental order vacated or made inapplicable
to this Agreement; or
there shall be any Law enacted, promulgated or issued or deemed applicable
to the Merger by any Governmental Entity that in the opinion of counsel of the terminating Party would
make consummation of the Merger illegal.
(iii)
(c)
by Parent if:
(i)
there shall have been any action taken, or any Law enacted, promulgated
or issued or deemed applicable to the Merger, by any Governmental Entity, which would (A) prohibit Parent’s
or the Surviving Corporation’s ownership or operation of any portion of the business of the Surviving
Corporation, or (B) compel Parent, the Company (pre-Closing) or the Surviving Corporation (post-Closing)
to dispose of or hold separate, as a result of the Merger, any material portion of the business or assets of the
Company, the Surviving Corporation or Parent;
(ii)
it is not in material breach of its obligations under this Agreement, there
has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company and, as a result of such breach, the conditions set forth in Sections 7.1 or 7.2, as the
case may be, would not then be satisfied; provided, however, that if such breach is curable by the Company
prior to the Outside Date through the exercise of its commercially reasonable efforts, then Parent may not
terminate this Agreement under this Section 8.1(c)(ii) prior to the earlier of the Outside Date or that date
which is fifteen (15) days following the Company’s receipt of written notice from Parent of such breach, it
being understood that Parent may not terminate this Agreement pursuant to this Section 8.1(c)(ii) if such
breach by the Company is cured within such fifteen (15)-day period so that such conditions would then be
satisfied; or
the Company has not delivered evidence that the Stockholder Approval has
been obtained within twenty four (24) hours from the execution of this Agreement provided that the Company
has not delivered evidence of the Stockholder Approval at the time of written notice of termination by Parent.
(iii)
(d)
by the Company if it is not in material breach of its obligations under this Agreement
and there has been a breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of Parent or Merger Sub and as a result of such breach the conditions set forth in
Sections 7.1 or 7.3, as the case may be, would not then be satisfied; provided, however, that if such breach
is curable by Parent prior to the Outside Date through the exercise of its commercially reasonable efforts,
then the Company may not terminate this Agreement under this Section 8.1(d) prior to the earlier of the
Outside Date or that date which is fifteen (15) days following Parent’s receipt of written notice from the
Company of such breach, it being understood that the Company may not terminate this Agreement pursuant
to this Section 8.1(d) if such breach by Parent is cured within such fifteen (15)-day period so that such
conditions would then be satisfied.
47
8.2.
Effect of Termination. Except as otherwise set forth in this Section 8.2, any termination of
this Agreement under Section 8.1 will be effective immediately upon the delivery of written notice of such
termination by the terminating Party to the other Parties. In the event of the termination of this Agreement
as provided in Section 8.1, this Agreement shall be of no further force or effect, except that (a) this Section
8.2 and ARTICLE XII shall survive the termination of this Agreement, and (b) nothing herein shall relieve
any Party from liability for any breach of this Agreement prior to such termination. No termination of this
Agreement shall affect the obligations of the parties to the Confidentiality Agreement, all of which obligations
shall survive the termination of this Agreement.
ARTICLE IX
INDEMNIFICATION
9.1.
Survival of Representations and Warranties.
(a)
The representations and warranties regarding the Company set forth in Article III
(including the Disclosure Letter) or in any certificate, document or other instrument delivered by or on behalf
of the Company pursuant to or in connection with this Agreement shall survive the execution and delivery
of this Agreement and the Closing and shall terminate at 5:00 p.m. Eastern time on the eighteen (18) month
anniversary of the Closing Date, except that:
The Company Fundamental Representations shall continue until ninety (90)
days following the expiration of the applicable statutes of limitation, if any, applicable to the matters addressed
therein;
(i)
(ii)
with respect to any claim for Losses made by an Indemnified Party to the
Equityholders Representative in accordance with this Agreement prior to such termination, in which case
the applicable representations and warranties that are the subject of such claim shall continue to survive
solely as to the specific matters as to which the claim is asserted until such claim is fully resolved as provided
herein.
(b)
The representations and warranties of the Stockholder Parties set forth in Article
IV (including the Disclosure Letter) or in any certificate, document or other instrument delivered by or on
behalf of a Stockholder Party pursuant to or in connection with this Agreement shall survive the execution
and delivery of this Agreement and the Closing and shall terminate at 5:00 p.m. Eastern time on the eighteen
(18) month anniversary of the Closing Date, except that:
the representations and warranties set forth in Sections 4.1, 4.2, 4.3 and 4.6
shall continue until ninety (90) days following the expiration of the applicable statutes of limitation, if any,
applicable to the matters addressed therein; and
(i)
(ii)
with respect to any claim for Losses made by Parent or the Surviving
Corporation to a Stockholder Party in accordance with this Agreement prior to such termination, in which
case the applicable representations and warranties that are the subject of such claim shall continue to survive
solely as to the specific matters as to which the claim is asserted until such claim is fully resolved as provided
herein.
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(c)
The representations and warranties of Parent and Merger Sub set forth in Article V
or in any certificate, document or other instrument delivered by or on behalf of Parent or Merger Sub pursuant
to or in connection with this Agreement shall survive the Parties’ investigation, execution and delivery of
this Agreement and the Closing and terminate at 5:00 p.m. Eastern time on the eighteen (18) month anniversary
of the Closing Date, except that:
the representations and warranties set forth in Sections 5.1, 5.2, and 5.10
shall continue until ninety (90) days following the expiration of the applicable statutes of limitation, if any,
applicable to the matters addressed therein; and
(i)
(ii)
with respect to any claim for Losses made by an Indemnified Party to Parent
in accordance with this Agreement prior to such termination, in which case the applicable representations
and warranties that are the subject of such claim shall continue to survive solely as to the specific matters
as to which the claim is asserted until such claim is fully resolved as provided herein.
9.2.
Indemnification.
(a)
Subject to the other provisions of this ARTICLE IX, Parent and the Surviving
Corporation shall be indemnified as provided in Section 9.3(a) from and against any and all Losses incurred,
suffered or paid by Parent or the Surviving Corporation directly or indirectly as a result of, with respect to,
in connection with, or arising from:
forth in Article III or any certificate delivered by or on behalf of the Company pursuant hereto or thereto;
(i)
any breach of any representation or warranty regarding the Company set
any breach by the Company of, or failure by the Company to perform, fulfill
or comply with any covenant set forth herein to be performed, fulfilled or complied with by the Company
prior to the Effective Time;
(ii)
not taken into account in determining the Net Initial Equity Consideration;
(iii)
any Transaction Expenses or any Indebtedness of the Company that are
(iv)
any Legal Action instituted by a Stockholder, Option Holder, or holder of
Restricted Stock or Restricted Stock Units (or any Person claiming to be such a Person), including pursuant
to Section 2.2, against Parent or the Surviving Corporation relating to any action, misrepresentation or
omission, occurring on or prior to the Closing Date, by the Company or any of its Subsidiaries or any of
their Representatives relating to this Agreement, the Transaction Documents and the transactions
contemplated hereby and thereby; or
while acting in bad faith.
(v)
any act done or omitted hereunder by the Equityholders Representation
(b)
Subject to the other provisions of this ARTICLE IX, each Stockholder Party shall
indemnify, defend and hold harmless Parent and the Surviving Corporation against any and all Losses incurred
or suffered by any of them directly or indirectly as a result of, with respect to, in connection with, or arising
from:
49
any breach of any representation or warranty of such Stockholder Party
contained in Article IV or any certificate delivered by or on behalf of such Stockholder Party pursuant hereto
or thereto; or
(i)
any breach by such Stockholder Party of, or failure by such Stockholder
Party to perform, fulfill or comply with any covenant set forth herein to be performed, fulfilled or complied
with by such Stockholder Party.
(ii)
(c)
Subject to the other provisions of this ARTICLE IX, Parent shall indemnify, defend
and hold harmless the Equityholders Group Members against any and all Losses incurred or suffered by any
of them directly or indirectly as a result of, with respect to, in connection with, or arising from:
any breach of any representation or warranty of Parent or Merger Sub set
forth in Article V or any certificate delivered by or on behalf of Parent or Merger Sub pursuant hereto or
thereto; or
(i)
any breach by Parent or Merger Sub of, or failure by such Parent or Merger
Sub to perform, fulfill or comply with any covenant set forth herein to be performed, fulfilled or complied
with by Parent or Merger Sub.
(ii)
(d)
For purposes of this Article IX, if any representation or warranty of a Party contained
in this Agreement, or in any certificate delivered hereunder is qualified in any respect by materiality, in all
material respects, Material Adverse Effect or words of like import, such materiality, in all material respects,
or Material Adverse Effect qualifiers or other qualifiers of like import shall be ignored in determining whether
a breach of any representation or warranty has occurred and in determining the amount of any resulting Loss.
9.3.
Limitations.
(a)
Any indemnification for Losses by Parent or the Surviving Corporation pursuant
to Section 9.2(a) or Section 10.1(a) shall first be required to be recovered by a reduction in amounts owed
under the Promissory Note. If and to the extent that it is not possible to satisfy any Losses by reducing the
amounts owed under the Promissory Note at any time for any reason and the Equityholders Representative
has not satisfied such Losses by paying to Parent or the Surviving Corporation funds in the amount of such
Losses that were withheld by it from Equityholders pursuant to Section 12.1(b), then the Stockholder Parties
shall indemnify, defend and hold harmless Parent and the Surviving Corporation for such Losses severally
based on their respective Indemnity Pro Rata Shares.
(b)
No claims shall be made by Parent or the Surviving Corporation for indemnification
pursuant to Section 9.2(a)(i) unless and until the aggregate amount of Losses (other than Losses incurred as
a result of inaccuracies or breaches of the Company Fundamental Representations) for which Parent and the
Surviving Corporation are entitled to seek to be indemnified pursuant to Section 9.2(a)(i) exceeds $3,500,000,
at which time Parent and the Surviving Corporation shall be entitled to indemnification for the amount in
excess of such amount, subject to the other limitations set forth in this ARTICLE IX.
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(c)
From and after the time that the claims made by Parent and the Surviving Corporation
for indemnification exceed $3,500,000, no claims for indemnification may be made by Parent or the Surviving
Corporation pursuant to Section 9.2(a)(i) for any individual item or series of related items where the Losses
(other than Losses incurred as a result of inaccuracies or breaches of the Company Fundamental
Representations) with respect to such item or series of related items (in the aggregate ) are less than $50,000.
(d)
Notwithstanding anything to the contrary in this Agreement, the aggregate amount
of any and all payments required to be made by all Equityholders pursuant to this ARTICLE IX (other than
any amounts owed as a result of a breach of Section 10.5(b)) and ARTICLE X, by means of a reduction of
the principal amount of the Promissory Note in accordance with this Agreement or otherwise, shall not
exceed Forty Five Million Dollars ($45,000,000), and Parent and the Surviving Corporation shall not be
entitled to any indemnification under this ARTICLE IX and ARTICLE X in excess of such amount.
(e)
All indemnification payments made pursuant to this ARTICLE IX shall be made
on an after-tax basis. Accordingly, in determining the Losses incurred or suffered by an Indemnified Party
hereunder, the amount of such Losses shall be (i) increased to take into account any additional Tax cost
incurred by such Indemnified Party arising from the receipt of applicable indemnification payments hereunder
and (ii) decreased to take into account any deduction, credit or other Tax benefit actually realized by such
Indemnified Party with respect to the receipt of applicable indemnification payments hereunder. In computing
the amount of any such Tax cost or Tax benefit, the Indemnified Party shall be deemed to recognize all other
items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of
applicable indemnification payments hereunder or the incurrence or payment relating to any Losses; provided
that, if any such Tax cost or Tax benefit is not realized in the taxable period during which the Indemnifying
Party makes an indemnification payment or the Indemnified Party incurs any Losses, the Parties shall
thereafter make payments to one another at the end of each subsequent taxable period to reflect the net Tax
costs or Tax benefits realized by the Parties in each such subsequent taxable period.
(f)
Any Indemnified Party that becomes aware of any Losses for which it seeks
indemnification under this ARTICLE IX shall be required to use commercially reasonable efforts to mitigate
such Losses, including seeking all available insurance; provided that the Indemnified Party shall not be
required to initiate litigation against any then-current customer, supplier, vendor or other Person (in each
case, other than an insurance provider) having a business relationship with such Indemnified Party or any
of its Affiliates.
(g)
The Losses suffered by any Indemnified Party shall be calculated after giving effect
to any insurance proceeds actually recovered by the Indemnified Party from insurance providers under
available insurance policies, net of (i) all out-of-pocket costs and expenses relating to collection from such
insurers, (ii) any deductibles associates therewith and (iii) any increase in premiums resulting therefrom.
(h)
Notwithstanding the fact that any Indemnified Party may have the right to assert
claims for indemnification under or in respect of more than one provision of this Agreement in respect of
any fact, event, condition or circumstance, no Indemnified Party shall be
51
entitled to recover the amount of any Losses suffered by such Indemnified Party more than once, regardless
of whether such Losses may be as a result of a breach of more than one representation, warranty or covenant.
Without limiting the generality of the foregoing, no Indemnified Party shall be able to recover any Loss for
which it is otherwise entitled to indemnification under this Agreement if such Loss has already been taken
into account in determining the Closing Net Working Capital pursuant to Section 2.6.
(i)
Except for claims for injunctive and other equitable relief, the sole and exclusive
remedy of any Indemnified Party for money damages for any matters relating to this Agreement or the
consummation of the transactions contemplated hereby shall be the rights to indemnification set forth in this
ARTICLE IX. No officer, director, manager, employee, Affiliate, advisor or other representative of the
Company or any of its Subsidiaries shall have any Liability under or with respect to this Agreement solely
in their capacity as such.
(j)
No party shall be entitled to be indemnified hereunder with respect to any Losses
that are in the nature of exemplary or punitive damages (except to the extent such damages are awarded in
a Third-Party Claim).
(k)
The limitations on indemnification contained in this Section 9.3 shall not apply in
the case of fraud or willful misconduct of the Indemnifying Party.
9.4.
Procedures.
(a)
If any Party believes at any time that it is entitled to be indemnified under this
ARTICLE IX, such Party (the “Indemnified Party”) shall promptly deliver to (i) the Equityholders
Representative, in the case of claims for indemnification being asserted by Parent or the Surviving
Corporation, and (ii) Parent, in the case of claims for indemnification being asserted by the Equityholders
Representative, a certificate (a “Claim Certificate”) that (x) states that the Indemnified Party has paid or
properly incurred Losses and the amount thereof, or reasonably anticipates that it may or will incur Losses,
for which such Indemnified Party is entitled to indemnification under this Agreement, and the estimated
amount thereof, and (y) specifies in reasonable detail, to the extent practicable, each individual item of Loss
included in the amount so stated, the date (if any) such item was paid or properly incurred, the basis for any
anticipated liability and the nature of the misrepresentation, default, breach of warranty or breach of covenant
or claim to which each such item is related and, to the extent computable, the computation of the amount to
which such Indemnified Party claims to be entitled hereunder; provided, however, that no delay on the part
of the Indemnified Party in delivering a Claim Certificate shall diminish the rights of the Indemnified Party
to be indemnified hereunder except to the extent that the delay shall increase the amount of such claim or
Loss, and then only to such extent.
(b)
If the Equityholders Representative, in the case of indemnification claims by Parent
or the Surviving Corporation, or Parent, in the case of indemnification claims by the Equityholders
Representative (in either case, the “Indemnifying Party”) objects to a claim of an Indemnified Party in respect
of any claim or claims specified in any Claim Certificate, the Indemnifying Party shall deliver a written
notice to such effect to the Indemnified Party within thirty (30) days after receipt of the Claim Certificate
by the Indemnifying Party. Thereafter, the
52
Indemnifying Party and the Indemnified Party shall attempt in good faith to agree upon their respective rights
within thirty (30) days after receipt by the Indemnified Party of such written objection with respect to each
of such claims to which the Indemnifying Party has objected. If the Indemnified Party and the Indemnifying
Party agree with respect to any of such claims, the Indemnified Party and the Indemnifying Party shall
promptly prepare and sign a memorandum setting forth such agreement. If, as a result of such agreement,
Parent is entitled to have the principal amount of the Promissory Note reduced, the Equityholders
Representative shall promptly execute an amendment to the Promissory Note reflecting such reduction.
Should the Indemnified Party and the Indemnifying Party fail to agree as to any particular item or items or
amount or amounts, then the Indemnified Party shall be entitled to pursue its available remedies for resolving
the claim for indemnification.
9.5.
Third-Party Claims.
(a)
If a claim for indemnification under this ARTICLE IX is based on, or results from,
a claim by a third party for which an Indemnified Party would be entitled to indemnification hereunder (a
“Third-Party Claim”), such Indemnified Party shall deliver notice thereof to the Indemnifying Party promptly
after receipt by such Indemnified Party of written notice of the Third-Party Claim, which (i) in the case of
a claim for indemnification by Parent or the Surviving Corporation shall be delivered to the Equityholders
Representatives and (ii) in the case of a claim for indemnification by the Equityholders Representative shall
be delivered to Parent, describing in reasonable detail the facts giving rise to any claim for indemnification
hereunder, the amount or method of computation of the amount of such claim (if known) and such other
information with respect thereto as the Indemnifying Party may reasonably request. Any failure or delay in
providing such notice, however, shall not release the Indemnifying Party from any of its obligations under
this Article IX except to the extent that the Indemnifying Party is prejudiced by such failure or delay.
(b)
The Indemnifying Party shall have the right, upon written notice to the Indemnified
Party within fifteen (15) Business Days of receipt of notice from the Indemnified Party of such Third Party
Claim, to assume the defense thereof at the expense of the Indemnifying Party with counsel selected by the
Indemnifying Party and reasonably satisfactory to the Indemnified Party so long as: (i) the Indemnifying
Party acknowledges in such notice that any Losses that the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of or caused by the Third-Party Claim constitute Losses that are
indemnifiable by the Indemnifying Party under this Article IX; (ii) the Third-Party Claim involves only
money damages and does not seek an injunction or other equitable relief; (iii) an adverse judgment or
settlement would not or would not reasonably be likely to establish a precedent adverse to the business of
the Indemnified Party; (iv) the Indemnifying Party conducts the defense of the Third-Party Claim actively
and diligently; and (v) the Indemnifying Party agrees to keep the Indemnified Party apprised of all
developments relating to the Third-Party Claim.
(c)
If the Indemnifying Party assumes the defense of such Third-Party Claim and is
conducting the defense of the Third-Party Claim in accordance with Section 9.5(b): (i) the Indemnified
Party shall have the right to employ separate counsel and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the Indemnified Party; provided that, if in the
reasonable opinion of counsel for the Indemnified
53
Party, there is a conflict of interest between the Indemnified Party and the Indemnifying Party (other than
simply arising from the indemnification obligation hereunder), the Indemnifying Party shall be responsible
for the reasonable fees and expenses of one counsel to such Indemnified Party in connection with such
defense; (ii) the Indemnified Party shall cooperate with the Indemnifying Party in such defense and make
available to the Indemnifying Party all witnesses, pertinent records, materials and information in the
Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably
required by the Indemnifying Party; (iii) the Indemnified Party shall not admit any liability with respect to,
or settle, compromise or discharge, or offer to settle, compromise or discharge, such Third-Party Claim
without the Indemnifying Party’s prior written consent (provided that if the Indemnifying Party does not
provide its consent to a settlement, compromise or discharge agreed to or recommended by the Indemnified
Party, then the monetary indemnification limitations set forth in Section 9.3(d) shall not apply to any Losses
resulting from such Third-Party Claim, and the amount of any difference between any such Losses and the
proposed settlement amount shall not be considered in determining whether the monetary limitations set
forth in Section 9.3(d) have been exceeded; and (iv) the Indemnifying Party shall not admit any liability
with respect to, or settle, compromise or discharge, or offer to settle, compromise or discharge, such Third-
Party Claim without the Indemnified Party’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed with respect to a settlement, compromise or discharge agreed to or
recommended by the Indemnifying Party that consists solely of the payment of a monetary amount of
$4,500,000 or greater (provided that if the Indemnified Party does not provide its consent to a settlement,
compromise or discharge that is agreed to or recommended by the Indemnifying Party and that consists
solely of the payment of a monetary amount, then the Indemnified Party shall be responsible for, and the
Indemnifying Party shall have no indemnification obligations with respect to, all Losses resulting from such
Third-Party Claim that are in excess of such monetary amount).
(d)
In the event any of the conditions in Section 9.5(b) is or becomes unsatisfied, the
Indemnified Party may defend against (with the Indemnifying Party responsible for the reasonable fees and
expenses of counsel to the Indemnified Party) in connection with such defense, and consent to the entry of
any judgment on or enter into any settlement with respect to, the Third-Party Claim in any manner the
Indemnified Party may reasonably deem appropriate (and the Indemnified Party need not consult with, or
obtain any consent from, any Indemnifying Party in connection therewith).
9.6.
Purchase Price Adjustment. Parent, the Surviving Corporation and the Equityholders
Representative (on behalf of the Equityholders) agree to treat each indemnification payment pursuant to this
ARTICLE IX as an adjustment to the consideration being paid to the Equityholders for all Tax purposes and
shall take no position contrary thereto unless required to do so by applicable Tax Law.
9.7.
Fraud and Willful Misconduct. For the avoidance of doubt, nothing in this ARTICLE IX
shall limit any Indemnified Party’s right to bring an action in a court of law or equity alleging fraud or willful
misconduct in connection with the transactions contemplated hereby that are otherwise available to such
Indemnified Party and to recover Losses from any other Party hereto awarded by such court with respect
thereto and the survival expiration periods
54
set forth in Section 9.1 and the limitations set forth in Section 9.3 shall not apply with respect to any such
action.
ARTICLE X
TAX MATTERS
10.1. Tax Indemnity.
(a)
Parent and the Surviving Corporation shall be indemnified as provided in Section
9.3(a) from and against, without duplication, any loss, claim, liability, expense or other damage attributable
to (a) all Taxes (or the nonpayment thereof) of the Company or any of its Subsidiaries for all Pre-Closing
Tax Periods, (b) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which
the Company or any of its Subsidiaries (or any predecessor of any of the foregoing) is or was a member on
or prior to the Closing Date, including pursuant to Treasury Regulation §1.1502-6 or any analogous or similar
state, local, or foreign law or regulation, and (c) any and all Taxes of any person imposed on the Company
or any of its Subsidiaries as a transferee or successor, by contract or pursuant to any law, rule, or regulation,
which Taxes relate to an event or transaction occurring before the Closing: provided, however, that no such
indemnification shall be available for (1) any Tax to the extent such Tax relates to any Post-Closing Tax
Period; (2) any Tax to the extent such Tax is taken into account in the computation of the Per Share Merger
Consideration; or (3) any Tax to the extent the Tax resulted from any breach by Parent of any covenant or
other agreement in this ARTICLE X.
(b)
Parent shall be responsible for and indemnify the Equityholders from and against
all Taxes (or the nonpayment thereof) of the Company or any of its Subsidiaries for all Post-Closing Tax
Periods.
(c)
For the avoidance of doubt, the Equityholders shall be entitled to receive the benefit
(whether realized by refund of Taxes or by credit against Taxes of Parent, the Company or any of its
Subsidiaries) attributable to any deductions allowed to the Surviving Corporation for the Transaction
Expenses, plus any actual interest collected on any such refund or credits attributable to such deductions,
received from the applicable Taxing authority; provided, however, that the Stockholder Parties shall
indemnify and hold harmless (on a several basis based on their respective Indemnity Pro Rata Share) Parent
and the Surviving Corporation for any excess payment made by Parent or the Surviving Corporation to the
Equityholders Representative (for further distribution to the Equityholders, subject to Section 12.1(b)) with
respect to any such deduction claimed. The Surviving Corporation shall, and shall cause its Subsidiaries to,
cooperate with the Equityholders Representative in obtaining any refunds or credits which the Equityholders
are entitled to receive the benefit of. Such cooperation shall include (i) informing the Equityholders
Representative if and to the extent that Parent, the Company or any Subsidiary of the Company becomes
aware of the possible availability of any such refund or credit, (ii) filing claims (including filing carryback
claims and claims for the overpayment of estimated taxes on Internal Revenue Service Form 4466 and
equivalent State forms) or amended Tax Returns at the request of the Equityholders Representative to obtain
any such refund or credit and (iii) paying the amount of such credit or refund over to the Equityholders
Representative (for further payment to the Equityholders in accordance with their respective Equity
Ownership Percentages and the payment instructions set forth in their
55
respective Letters of Transmittal) by wire transfer within five (5) Business Days after the receipt thereof.
10.2. Responsibility for Filing Tax Returns.
(a)
The Surviving Corporation shall prepare and file, or cause to be prepared and filed,
at its sole cost and expense, all income Tax Returns of the Company or its Subsidiaries for any Pre-Closing
Tax Period or Straddle Period that are filed or due (after taking into account all appropriate extensions) after
the Closing Date. Such income Tax Returns shall be prepared on a basis consistent with existing procedures
and practices and accounting methods and by KPMG. At least forty-five (45) days prior to the due date of
each such Tax Return, the Surviving Corporation shall submit a draft of such Tax Return to the Equityholders
Representative for its review and comment. The Surviving Corporation and the Equityholders Representative
shall cooperate in the preparation and filing of such tax return and the Surviving Corporation shall give good
faith consideration to any comments made by the Equityholders Representative and shall make all changes
(including making or refraining from making any election) requested by the Equityholders Representative
that are consistent with applicable Law and are necessary to implement the provisions of Section 2.9 or
otherwise maximize the deductions taken in such returns.
(b)
For purposes of preparing all Tax Returns, and for purposes of determining whether
to make (or not to make) certain Tax elections, the Stockholder Parties, the Equityholders Representative
and Parent agree to use the following conventions (and to cause the Company and Parent’s other Affiliates
to use the following conventions):
(i)
Any tax deductions resulting from the payment or accrual of an amount in
a Pre-Closing Tax Period shall be treated as occurring on the Closing Date and no Party shall make any
election under Treasury Regulation Section 1.1502-76(b)(1)(ii)(B) (or any similar provision of state, local,
or non-U.S. applicable Law) to apply the “next day rule” to such deductions.
(ii)
Any gains, income, deductions, losses, or other items resulting from
transactions outside of the ordinary course of business and not contemplated by this Agreement occurring
on the Closing Date at the direction of Parent, but after the Closing, shall be treated as occurring on the day
after the Closing Date and each Party shall utilize the “next day rule” in Treasury Regulation Section 1.1502-76
(b)(1)(ii)(B) (or any similar provision of state, local, or non-U.S. applicable Law) for purposes of reporting
such items on applicable Tax Returns.
No Party shall make an election under Treasury Regulation Section
1.1502-76(b)(2)(ii) (or any similar provision of state, local, or non-U.S. applicable Law) to ratably allocate
items incurred by the Company or any of its Subsidiaries.
(iii)
(iv)
To the extent permissible under applicable Laws, to elect to have the Tax
year of the Company end on the Closing Date and, if such election is not permitted or required in a jurisdiction
such that the Company is required to file a Tax Return for a Straddle Period, the Parties agree to use the
following conventions for determining the amount of Taxes
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attributable to the portion of the Straddle Period ending on the Closing Date: (a) in the case of Income Taxes,
Taxes imposed on sales or receipts, and Taxes imposed on payments, the amount attributable to such portion
shall be determined as if the Company filed a separate Tax Return with respect to such Taxes for the portion
of the Straddle Period ending as of the end of the day on the Closing Date using a “closing of the books
methodology”; and (b) in the case of all other Taxes, the amount attributable to the portion of the Straddle
Period ending on the Closing Date shall be determined by multiplying the Taxes for the entire Straddle Period
by a fraction, the numerator of which is the number of calendar days in the portion of the Straddle Period
ending on the Closing Date and the denominator of which is the number of calendar days in the entire Straddle
Period. For purposes of clause (a), any item determined on an annual or periodic basis (including amortization
and depreciation deductions) shall be allocated to the portion of the Straddle Period that ends on the Closing
Date based on the relative number of days in such portion as compared to the number of days in the entire
Straddle Period. Notwithstanding anything to the contrary herein, any estimated payments or payments from
a prior tax period that are applied to a Straddle Period shall be applied entirely to the portion of the Straddle
Period ending on the Closing Date.
(c)
Parent, the Company, the Equityholders Representative and the Stockholder Parties
shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this ARTICLE X and any audit, litigation or other proceeding with respect
to Taxes (including Tax Contests). Such cooperation shall include the retention for the full period of any
statute of limitations and (upon the other Party’s request) the provision of records and information that are
reasonably relevant to any such Tax Return, audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional information and explanation of any material
provided hereunder. The Company and the Equityholders agree (A) to retain all books and records with
respect to Tax matters pertinent to the Company and its Subsidiaries relating to any Taxable period beginning
before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Parent
or the Equityholders, any extensions thereof) of the respective Taxable periods, and to abide by all record
retention agreements relating to Taxes entered into with any taxing authority, and (B) to give the other Party
reasonable written notice prior to transferring, destroying or discarding any such books and records and, if
the other party so requests, the Company or the Equityholders, as the case may be, shall allow the other party
to take possession of such books and records.
10.3. Tax Contests.
(a)
If any taxing authority issues to the Company or any of its Subsidiaries (1) a notice
of its intent to audit or conduct another legal proceeding with respect to a Tax Return or Taxes of the Company
for any Pre-Closing Tax Period or Straddle Period or (2) a notice of deficiency for Taxes for any such period,
Parent or the Company shall notify the Equityholders Representative of its receipt of such communication
from the taxing authority within twenty (20) days of receipt. Such notice shall be accompanied by a copy
of any written notice or other document received from the applicable taxing authority.
(b)
Except as otherwise provided in this Section 10.3, the Surviving Corporation shall
have the sole right to control, at its expense, the contest of any audit or other
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Legal Proceedings in respect of any Taxes or Tax Returns of the Company or any of its Subsidiaries (a “Tax
Contest”). The Equityholders Representative may, at its expense, participate in any such Tax Contest. No
Tax Contest relating to a Pre-Closing Tax Period or a Straddle Period may be settled by the Surviving
Corporation without Equityholders Representative’s prior written consent if such settlement involves a matter
for which Parent is seeking indemnification hereunder or a matter that is the subject of Section 10.5(b);
provided, however, that no such consent by the Equityholders Representative shall be unreasonably withheld
or delayed.
(c)
In connection with any Tax Contest in which a Person elects to participate but does
not have the right to control, (1) the participating Person shall notify the controlling Person of such intent,
(2) the controlling Person shall take all actions necessary to allow the participating Person (and its counsel)
to fully participate in such Tax Contest, (3) the controlling Person (and its counsel) shall consult with the
participating Person (and its counsel) regarding the conduct of such Tax Contest and vice versa, (4) the
controlling Person shall timely provide the participating Person with copies of all correspondence and other
documents received regarding the Tax Contest from the applicable taxing authority, and (5) the controlling
Person shall permit the participating Person to review and comment on any correspondence and other
documents that will be provided to the taxing authority with respect to such Tax Contest to the extent that
such correspondence or other documents may reasonably be expected to have an impact on the participating
Person.
(d)
In connection with any Tax Contest in which a Person has the right to participate
but elects not to do so, the controlling Person nevertheless shall keep such Person reasonably informed
regarding the status of such Tax Contest.
10.4. Assistance and Cooperation. The Equityholders Representative and Parent shall furnish or
cause to be furnished to each other, upon request, as promptly as practicable, such information (including
access to books and records) and assistance relating to the Company and its Subsidiaries as is reasonably
requested for the filing of any Tax Returns, for the preparation of any audit, for the filing of Tax refund
claims or amended Tax Returns and for the prosecution or defense of any Tax claim. Parent shall, and shall
cause the Surviving Corporation and its Subsidiaries to, preserve and keep all books and records with respect
to Taxes and Tax Returns of the Company and its Subsidiaries until the expiration of the applicable statute
of limitations. Any information obtained under this Section 10.4 shall be kept confidential except (a) as may
be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting
an audit or other proceeding or (b) with the consent of the party in possession of such information.
10.5. Transfer Taxes.
(a)
Any and all transfer, documentary, sales, use, stamp, registration and other Taxes
and fees payable in connection with the consummation of the transactions contemplated by this Agreement
(which for the avoidance of doubt do not include any such transfer or other Taxes referenced under Section
10.5(b)) shall be split equally between Parent, on the one hand, and the Equityholders, on the other hand,
and shall be paid by Parent and the Equityholders Representative (on behalf of the Equityholders) when due,
and Parent shall, at its own expense,
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file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other Taxes and fees, and, if required by Law, the Equityholders Representative,
on behalf of the Equityholders, shall join in the execution of any such Tax Returns and documentation.
(b)
Any and all transfer, documentary, sales, use, stamp, registration and other Taxes
and fees payable by the Company or any of its Subsidiaries relating to the transfer of title of any Owned
Real Property to the Company or any of its Subsidiaries, or any filing or recording made by the Company
or any of its Subsidiaries to reflect the Company or any of its Subsidiaries as the legal owner of any Owned
Real Property, shall be paid by the Equityholders Representative (on behalf of the Equityholders) when due,
and the Equityholders Representative shall, at its own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by Law, the Surviving Corporation and any applicable Subsidiary shall join in the
execution of any such Tax Returns and documentation.
10.6. Treatment of Payments. All amounts paid under this ARTICLE X shall, to the extent
permitted by Law, be treated for all purposes as adjustments to the consideration payable to the Equityholders
hereunder.
ARTICLE XI
DEFINITIONS; CONSTRUCTION
11.1. Definitions. For the purposes of this Agreement:
“280G Waiver” is defined in Section 6.16.
“401(k) Plan” is defined in Section 6.5(b).
“Accounting Arbitrator” means Grant Thornton LLP.
“Accounting Conventions” means the illustrative calculation and the accounting principles,
procedures, practices, policies and calculations set forth on Section 11.1(a) of the Disclosure Letter.
“Acquisition Date” means March 31, 2011.
“Acquisition Proposal” means any inquiry, proposal or offer from any Person (other than Parent or
any of its Affiliates) concerning or relating to (a) a merger, consolidation, liquidation, recapitalization, share
exchange or other business combination transaction involving the Company or any of its Subsidiaries; (b)
the issuance or acquisition of shares of capital stock or other Equity Securities of the Company or any of its
Subsidiaries; or (c) the sale, lease, exchange or other disposition of any significant portion of the Company’s
or any of its Subsidiaries’ properties or assets.
“Affidavit of Loss” is defined in Section 2.4(d).
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“Affiliate” means, with respect to the Person to which it refers, a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under common control with, such Person.
For the purpose of this definition, the term “control” of a Person means the power to direct, or cause the
direction of, the management and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise, and the terms and phrases “controlling,” “controlled by” and “under common
control” have correlative meanings.
“Agreement” is defined in the Preamble.
“Applicable Law” means, with respect to any Person, any Law that is binding upon or applicable
to such Person, as amended unless expressly specified otherwise.
“Balance Sheets” is defined in Section 3.7(a).
“Balance Sheet Date” is defined in Section 3.7(a).
“Board” is defined in Recital B.
“Business” means the distribution and marketing of automotive aftermarket parts and accessories
as conducted by the Company and its Subsidiaries.
“Business Day” means any day of the year on which national banking institutions in the State of
New York are open to the public for conducting business and are not required to close.
“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended.
“Certificate” means a certificate evidencing shares of Common Stock.
“Certificate of Merger” is defined in Section 1.3.
“Claim Certificate” is defined in Section 9.4(a).
“Class A Common Stock” means the Company’s Class A Common Stock, par value $0.01 per share.
“Class B Common Stock” means the Company’s Class B Common Stock, par value $0.01 per share.
“Closing” is defined in Section 1.2.
“Closing Bank Debt” means the outstanding obligations of the Company and its Subsidiaries as of
immediately prior to the Effective Time under the Senior Credit Facilities (including any interest, fees or
penalties (including prepayment penalties) accrued or owed with respect thereto).
“Closing Date” is defined in Section 1.2.
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“Closing Net Working Capital” is defined on Section 2.6 of the Disclosure Letter.
“Closing Statement” is defined in Section 2.6(b).
“Code” means the United States Internal Revenue Code of 1986, as amended.
“Common Stock” means the Class A Common Stock and the Class B Common Stock (including
Restricted Stock).
“Company” is defined in the Preamble.
“Company Employee Plan” means any plan, program, policy, practice, contract, agreement or other
arrangement (written or oral) providing for deferred compensation, profit sharing, bonus, severance, change-
of-control payments, termination pay, performance awards, stock option, share appreciation right or other
stock-related awards, fringe benefits, group or individual health, dental, medical, life insurance, survivor
benefit or other welfare, pension or other employee benefits or remuneration of any kind, whether formal
or informal, funded or unfunded, including each “employee benefit plan” within the meaning of Section 3
(3) of ERISA, whether or not subject to ERISA, which is or has been maintained, contributed to, or required
to be contributed to, by the Company or any of its Subsidiaries or ERISA Affiliates for the benefit of any
Employee, or pursuant to which the Company or any of its Subsidiaries has or may have any liability,
contingent or otherwise.
“Company Equity Incentive Plan” means the Keystone Automotive Holdings, Inc. Stock Incentive
Plan.
“Company Fundamental Representations” means the representations and warranties set forth in
Sections 3.1 through 3.4, 3.20 and 3.25.
“Company Intellectual Property” means any Intellectual Property that is owned by the Company or
one of its Subsidiaries.
“Company Material Adverse Effect” means a material adverse effect on the Business, assets,
properties, Liabilities, capitalization, operations, or condition (financial or otherwise) of the Company and
its Subsidiaries, taken as a whole; provided, however, that none of the following will be deemed, either alone
or in combination, to constitute, and none of the following will be taken into account in determining whether
there has been or will be, a Company Material Adverse Effect: (i) events, changes, developments or
circumstances relating to the industries or the markets in which the Company and its Subsidiaries operate,
including changes resulting from weather or natural conditions, (ii) events, changes, developments,
conditions or circumstances that effect the United States economy generally, (iii) an outbreak or escalation
of war, armed hostilities, acts of terrorism, political instability or other national or international calamity,
crisis or emergency, or any governmental or other response to any of the foregoing, in each case, whether
occurring within or outside the United States, (iv) changes in Law or GAAP, (v) any change, effect,
circumstance or event arising from the announcement of this Agreement or (vii) any action or omission of
the Company or any of its Subsidiaries prior to the Closing Date contemplated by this Agreement or taken
with the prior written consent of Parent, as long as, in the case of the foregoing clauses (i) through (iv), such
change,
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circumstance, event or effect has not had, or would not reasonably be expected to have, a materially
disproportionate adverse impact on the Company and its Subsidiaries, taken as a whole, relative to other
Persons operating in the industry sector or sectors in which the Company and its Subsidiaries operate.
“Company’s Knowledge” (including any derivation thereof such as “known” or “knowing”) means
the actual or constructive knowledge of any of Edward Orzetti, Rich Paradise, Kevin Canavan or Rudy
Esteves.
“Confidentiality Agreement” is defined in Section 6.2.
“Consents” means approvals, consents (including negative consents), waivers, filings,
authorizations, Licenses, notices, reports or similar items.
“Constitutional Documents” means, as to any Person, the constitutional or organizational documents
of such Person, including any charter, certificate or articles of incorporation, certificate of formation, articles
of association, bylaws, trust instrument, partnership agreement, limited liability company or operating
agreement or similar document.
“Contract” means any written or oral agreement, contract, outstanding purchase orders, mortgage,
indenture, lease, license, instrument, document, obligation or commitment that is legally binding, including
all amendments, modifications and supplements thereto; provided, however, that the term “Contract” does
not include purchase orders received in the ordinary course of business.
“Covered Persons” is defined in Section 6.4(a).
“DGCL” is defined in Recital A.
“Disclosure Letter” is the Disclosure Letter, dated as of the date of this Agreement and delivered
herewith to Parent.
“Dissenting Shares” is defined in Section 2.2.
“Effective Time” is defined in Section 1.3.
“Employee” means any current, former, or retired employee of the Company or any of its
Subsidiaries.
“Environmental Claim” means any Legal Action, Judgment, lien, fine, penalty, or, as to each, any
settlement or judgment arising therefrom, by or from any Person alleging Liability of whatever kind or nature
(including Liability or responsibility for the costs of enforcement proceedings, investigations, cleanup,
governmental response, removal or remediation, natural resources damages, property damages, personal
injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of,
based on or resulting from: (a) the presence, Release of, or exposure to, any Hazardous Materials; or (b) any
actual or alleged non-compliance with any Environmental Law or term or condition of any Permit.
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“Environmental Law” means any and all Applicable Laws and Licenses issued, promulgated or
entered into by any Governmental Entity relating to the environment, the protection or preservation of human
health or safety, including the health and safety of employees, the regulation, manufacture, packaging,
transportation, storage, import, export, or disposal of chemical substances, mixtures, articles, or petroleum
products, the preservation or reclamation of natural resources, or the treatment, storage, disposal,
management, Release or threatened Release of Hazardous Materials, in each case as in effect on the date
hereof and as may be issued, promulgated or amended from time to time.
“Equityholders” means the Stockholders, the holders of any Restricted Stock Units and the Option
Holders.
“Equityholders Representative” is defined in the Preamble.
“Equity Interest” means, with respect to any Person, any outstanding Equity Securities, subscriptions,
options, calls, warrants or other rights to acquire Equity Securities whether or not currently exercisable.
“Equity Ownership Percentage” means, for each Equityholder, an amount equal to the fraction,
expressed as a percentage (rounded to six decimal places), the numerator of which is the sum of (a) the
number of shares of Common Stock held by such Equityholder immediately prior to the Effective Time
(including any shares of Class B Common Stock issuable upon settlement of the Restricted Stock Units), if
any, plus, (b) the number of shares of Class B Common Stock that are the subject of Stock Options held by
such Equityholder immediately prior to the cancellation of such Stock Options as contemplated by this
Agreement, if any, and the denominator of which is the number of Fully Diluted Shares Outstanding.
“Equity Securities” means, with respect to any Person, any of its capital stock, partnership interests
(general or limited), limited liability company interests, trust interests or other securities which entitle the
holder thereof to participate in the earnings of such Person or to receive dividends or distributions on
liquidation, winding up or dissolution of such Person, or to vote for the election of directors or other
management of such Person, or to exercise other rights generally afforded to stockholders of a corporation.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means any Person that, together with the Company or any of its Subsidiaries,
would be treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and the
regulations thereunder within the past 7 years.
“Estimated Closing Cash” is defined in Section 2.6(a).
“Estimated Closing Net Working Capital” is defined in Section 2.6(a).
“Estimated Statement” is defined in Section 2.6(a).
“Exercise Price” means, with respect to any outstanding Stock Option, the aggregate amount that
would be required to be paid in order to exercise such Stock Option.
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“Financial Statements” is defined in Section 3.7(a).
“Fully Diluted Shares Outstanding” means, excluding treasury shares, the sum of (a) the number of
shares of Common Stock outstanding immediately prior to the Effective Time (including shares of Restricted
Stock, without regard to any voting restrictions), plus (b) the number of shares of Common Stock issuable
in settlement of any outstanding Restricted Stock Units), plus (c) the number of shares of Class B Common
Stock that would be issuable upon exercise of all Stock Options outstanding immediately prior to the Effective
Time (without regard to any vesting restrictions).
“GAAP” means generally accepted accounting principles in the United States as in effect on the
date of this Agreement.
“Governmental Entity” means any court, administrative agency, department, commission, board,
bureau, or other federal, state, county, local or foreign governmental entity, instrumentality, agency or
commission.
“Hazardous Material” means those materials, substances, biogenic materials, articles, or wastes that
are regulated by, or form the basis of liability under, any Environmental Law, including PCBs, pollutants,
solid wastes, explosive, radioactive or regulated materials or substances, hazardous or toxic materials,
substances, wastes or chemicals, mixtures of chemical substances, special materials, petroleum (including
crude oil or any fraction thereof) or petroleum distillates, asbestos or asbestos containing materials, materials
listed in 49 C.F.R. Section 172.101 and materials defined as hazardous substances pursuant to Section 101
(14) of CERCLA.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
“HSR Filing” is defined in Section 6.3(d).
“Improvements” is defined in Section 3.11(f).
“Indebtedness” of any Person means (a) all indebtedness for borrowed money, (b) all obligations
issued, undertaken or assumed as the deferred purchase price of property or services (in each case, whether
or not matured or payable), other than trade accounts arising in the ordinary course of business consistent
with past practice, (c) all obligations evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (d) all
indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by such Person, (e) all obligations of such Person
under any interest rate, currency or other hedging agreement, (f) all obligations of such Person as lessee
under arrangements entered into after the Balance Sheet Date, which should be capitalized in accordance
with GAAP, (g) without duplication, all indebtedness referred to in clauses (a) through (f) above secured by
(or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, whether
or not such Person has assumed or become liable for the payment of such Indebtedness, and (h) without
duplication, all agreements,
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undertakings or arrangements by which such Person guarantees, endorses or otherwise becomes or is
contingently liable for (by direct or indirect, contingent or otherwise, agreement to provide funds for payment,
to supply funds to, or otherwise to invest in, a debtor, or otherwise assure a creditor against loss) the
Indebtedness of any other Person, or guarantees the payment of dividends or other distributions upon the
equity securities or interests of any other Person; provided, however, that Indebtedness does not include (w)
any amounts accrued for financing fees, (x) any obligation to indemnify a Person pursuant to the Company’s
and its Subsidiaries’ Constitutional Documents or insurance policies or reimburse ordinary business expenses,
(y) any reimbursement obligations with respect to surety bonds, letters of credit, bankers’ acceptances and
similar instruments (in each case, whether or not matured), or (z) any individual cash account balances that
are in an overdraft position (i.e. negative cash), if any, which previously had been recorded under GAAP as
indebtedness on the Balance Sheets.
“Indemnified Party” is defined in Section 9.4(a).
“Indemnifying Party” is defined in Section 9.4(b).
“Indemnity Pro Rata Share” means, as to Sphere 70.90%, and to Cetus Capital, LLC, 29.10%.
“Initial Per Share Merger Consideration” means an amount equal to (i) the sum of (A) the Net Initial
Equity Consideration, plus (B) the aggregate amount of the Exercise Prices of the Stock Options that are
outstanding immediately prior to the cancellation and settlement thereof in accordance with Section 2.3(a),
divided by (ii) the number of Fully Diluted Shares Outstanding.
“Initial Stock Option Cancellation Payment” means, with respect to any outstanding Stock Option,
an amount in cash equal to (i) the product of (A) the Initial Per Share Merger Consideration multiplied by
(B) the total number of shares of Class B Common Stock issuable upon exercise of such Stock Option
immediately prior to the cancellation thereof, minus (ii) the Exercise Price of such Stock Option.
“Intellectual Property” means all of the following and similar intangible property and related
proprietary rights, interests and protections, however arising, pursuant to the Laws of any jurisdiction
throughout the world: (a) trademarks, service marks, trade names, brand names, logos, trade dress and other
proprietary indicia of goods and services, whether registered or unregistered, and all registrations and
applications for registration of such trademarks, including intent-to-use applications, all issuances, extensions
and renewals of such registrations and applications and the goodwill connected with the use of and symbolized
by any of the foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level
domain by any authorized private registrar or Governmental Entity and all related user accounts and social
networking pages; (c) original works of authorship in any medium of expression, whether or not published,
all copyrights (whether registered or unregistered), all registrations and applications for registration of such
copyrights, and all issuances, extensions and renewals of such registrations and applications; (d) confidential
information, formulas, designs, devices, technology, know-how, research and development, inventions,
methods, processes, compositions and other trade secrets, whether or not patentable; and (e) patented and
patentable designs and
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inventions, all design, plant and utility patents, letters patent, utility models, pending patent applications and
provisional applications and all issuances, divisions, continuations, continuations-in-part, reissues,
extensions, reexaminations and renewals of such patents and applications.
“Intellectual Property Registrations” is defined in Section 3.12(a).
“Judgment” means, with respect to any Person, any order, injunction, judgment, stipulation, award,
decision, decree, verdict, ruling or other similar requirement enacted, adopted, entered, issued, made,
rendered, promulgated or applied by a Governmental Entity or arbitrator that is binding upon or applicable
to such Person.
“KAO” means Keystone Automotive Operations, Inc., a Pennsylvania corporation.
“Key Employee” means any Employee with annual base compensation in excess of $100,000.
“Law” means any federal, state, foreign or local law, statute, ordinance, annex, rule, order, regulation,
writ, injunction, directive, judgment, treaty, decree or administrative or judicial decision.
“Leased Real Property” is defined in Section 3.11(b).
“Legal Action” means any action, suit, proceeding, lawsuit, arbitration, notice of violation, litigation,
citation or known investigation, in each case of any nature, civil, criminal, administrative, regulatory or
otherwise, in Law or in equity, by or before any court, tribunal, arbitrator or other Governmental Entity.
“Letter of Transmittal” is defined in Section 2.4(a).
“Letters of Credit” is defined in Section 3.7(c).
“Letters of Credit Agreement” is defined in Section 3.7(c).
“Liability” means any liability or other similar obligation (whether known or unknown, asserted or
unasserted, fixed, absolute or contingent, matured or unmatured, determined or determinable, accrued or
unaccrued, liquidated or unliquidated).
“Licenses” means all Consents, licenses, permits, certificates, variances, exemptions, franchises and
other approvals or authorizations issued, granted, given, required or otherwise made available by any
Governmental Entity.
“Lien” means any lien, pledge, mortgage, deed of trust, security interest, claim, charge,
hypothecation, option to purchase or lease or otherwise acquire any interest, conditional sales or other title
retention agreement, adverse claim of ownership or use, title defect, title exception, easement, right of way,
proxy, voting trust or agreement, transfer restriction under any stockholder or similar agreement, or
encumbrance of any nature whatsoever.
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“Losses” shall mean, without duplication for purposes of recovery, losses, Liabilities, damages,
penalties, costs and expenses, including reasonable attorneys’ fees and expenses, settlement payments,
awards, judgments, fines, deficiencies and expenses of investigation and defense.
“Material Contract” is defined in Section 3.13(b).
“Merger” is defined in Recital A.
“Merger Sub” is defined in the Preamble.
“Mortgage” means the Mortgage, by and between KAO and the Equityholders Representative, in
substantially the form of Exhibit B attached hereto.
“Net Closing Cash” means the consolidated cash and cash equivalents of the Company and its
Subsidiaries as of the close of business on the Closing Date (without giving effect to any increases or decreases
in cash and cash equivalents in connection with the Closing), prepared in accordance with the illustrative
calculation and the accounting principles, procedures, practices, policies and calculations set forth on Section
2.6(a) of the Disclosure Letter. For the avoidance of doubt, Net Closing Cash shall include any cash or cash
equivalents held by the Company or any of its Subsidiaries with respect to the Unpaid Class B Dividends
and shall include any individual cash account balances that are in an overdraft position (i.e. negative cash),
if any, which previously has been recorded under GAAP as indebtedness on the Balance Sheets.
“Net Initial Equity Consideration” means an amount determined in accordance with the calculation
set forth on Section 11.1(b) of the Disclosure Letter.
“Net Working Capital Schedule” is defined in Section 3.7(d).
“NTP Payments” means the deferred payments required to be paid to Messrs. Gregory M. Boyd,
Robert L. Morter and Steven M. Whitrock under Section 1.4(a)(iv) and (v) of the NTP SPA.
“NTP SPA” means that certain Stock Purchase Agreement, dated October 14, 2011, by and among
NTP Distribution, Inc., KAO, and Messrs. Gregory M. Boyd, Robert L. Morter, and Steven M. Whitrock.
“Option Consent Agreement” means the Option Consent Agreements to be entered into between the
Company and the Option Holders in a form satisfactory to the Company and Parent.
“Option Holders” means the holders of the outstanding Stock Options.
“Outside Date” is defined in Section 8.1(b)(i).
“Owned Real Property” is defined in Section 3.11(a).
“Parent” is defined in the Preamble.
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“Parent Benefit Plans” is defined in Section 6.5(a).
“Parent Material Adverse Effect” means any event, circumstance, change, occurrence, state of facts,
development or effect that, individually or in the aggregate would prevent or materially impair the ability
of Parent or Merger Sub to consummate the Merger.
“Parties” means Parent, Merger Sub, the Company, the Stockholder Parties and the Equityholders
Representative and “Party” means any of the Parties.
“Payoff Letters” is defined in Section 6.18.
“Permits” means a permit, license, approval, franchise, certificate, waiver, consent, exemption,
registration or authority of any Governmental Entity.
“Permitted Liens” means, with respect to any Person, (i) Liens for Taxes, if such Taxes are not yet
due and payable or the Person is contesting them in good faith and has established adequate reserves for
them; (ii) unrecorded workmen’s, repairmen’s or other similar Liens incurred in the ordinary course of
business in respect of obligations which are not overdue, (iii) imperfections of title and encumbrances, if
any, as are not substantial in character, amount or extent and do not individually or in the aggregate, impair
the continued use, occupancy, value or marketability of title of the property to which they relate, assuming
that the property is used on substantially the same basis as such property is currently being used by the
Company and its Subsidiaries, (iv) pledges or deposits made in the ordinary course of business consistent
with past practice in connection with worker’s compensation, unemployment insurance or other programs
required by Applicable Law, and (v) Liens against or affecting leased property which is not a violation of
the lease for such property and is not a result of actions of the Company or any of its Subsidiaries.
“Per Share Merger Consideration” is defined in Section 2.1(a).
“Person” means any individual, corporation, partnership, limited liability company, firm, joint
venture, association, joint-stock company, trust, unincorporated organization, Governmental Entity or other
entity.
“Personal Property Lease” is defined in Section 3.10(b).
“Post-Closing Tax Period” means (a) any taxable period beginning after the Closing Date and (b)
the portion of any Straddle Period beginning after the Closing Date.
“Pre-Closing Tax Period” means (a) any taxable period ending on or before the Closing Date and
(b) the portion of any Straddle Period ending on the Closing Date.
“Promissory Note” means a Secured Promissory Note to be delivered by Parent to the Equityholders
Representative at Closing in substantially the form of Exhibit A attached hereto.
“Qualified Benefit Plan” is defined in Section 3.19(c).
“Real Property” means the Owned Real Property and the Leased Real Property.
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“Real Property Lease” is defined in Section 3.11(b).
“Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing into the environment (including the abandonment or discarding
of barrels, containers, and other closed receptacles containing any Hazardous Substance, pollutant,
contaminant, chemical substance, or mixtures of chemical substances).
“Representative Holdback Amount” means One Million Five Hundred Thousand Dollars
($1,500,000).
“Representatives” means, with respect to a Person, such Person’s directors, managers, officers,
employees, accountants, legal counsel, advisors, agents, regulatory, compliance or environmental consultants
and other representatives.
“Reserved Equity Interests” means the additional Equity Interests required to be granted in
connection with the transactions contemplated by this Agreement pursuant to Section 12 of the Company
Equity Incentive Plan.
“Restricted Stock” means the outstanding restricted shares of Class B Common Stock issued under
the Company Equity Incentive Plan (including any Reserved Equity Interests that are issued as Restricted
Stock).
“Restricted Stock Unit Consent Agreement” means the Restricted Stock Unit Consent Agreement
to be entered into between the Company and the holders of Restricted Stock Units in a form satisfactory to
the Company and Parent.
“Restricted Stock Units” means the Restricted Stock Units granted pursuant to the Company Equity
Incentive Plan (including any Reserved Equity Interests that are issued as Restricted Stock Units).
“Revolving Credit Facility” means the credit facility provided to the Company and its Subsidiaries
pursuant to that certain Amended and Restated Revolving Credit Agreement, dated as of August 15, 2013,
among the Company, a Subsidiary of the Company, certain lenders party thereto and Bank of America, N.A.,
as Administrative Agent, Issuing Bank and Swingline Lender.
“Senior Credit Facilities” means the Revolving Credit Facility and the credit facilities provided to
the Company and its Subsidiaries pursuant to that certain Term Loan Credit Agreement and that certain Term
Loan Credit Agreement (Second Lien), each dated as of August 15, 2013, and each among the Company, a
Subsidiary of the Company, various lenders and UBS AG, Stamford Branch, in its capacity as administrative
agent.
“Sphere” means Sphere Capital, LLC-Series A, a Delaware limited liability company.
“Stockholder Approval” means the irrevocable adoption of this Agreement by Stockholders (whether
at a special meeting of the Stockholders or by written consent) holding more than 50% of the outstanding
shares of Common Stock.
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“Stockholder Material Adverse Effect” means any event, circumstance, change, occurrence, state
of facts, development or effect that, individually or in the aggregate would prevent or materially impair the
ability of a Stockholder to perform its obligations under this Agreement.
“Stockholder Parties” is defined in the Preamble.
“Stockholders” means the holders of shares of Common Stock.
“Stockholder Agreement” means the Stockholder Agreement, dated as of March 30, 2011, by and
among the Company and certain of its stockholders party thereto.
“Stock Options” means the options to purchase shares of Class B Common Stock granted pursuant
to the Company Equity Incentive Plan (including any Reserved Equity Interests that are issued as options
to purchase shares of Class B Common Stock).
“Straddle Period” means any taxable period that begins on or before the Closing Date and ends after
the Closing Date.
“Subsequent Payments” means the payments made (A) under the Promissory Note, when and as
provided therein, (B) from the Representative Holdback Amount, when and as provided in Section 2.7, (C)
in connection with the final determination of Closing Net Working Capital and Net Closing Cash, when and
as provided in Section 2.6(d), and (D) in connection with the receipt of any Tax Refunds or other Tax related
payments, when and as provided in Section 10.1(c).
“Subsidiary” of any Person means (a) a corporation of which such Person owns or controls such
number of the voting securities which is sufficient to elect at least a majority of its Board of Directors or (b)
a partnership or limited liability company of which such Person (either alone or through or together with
any other Subsidiary) is the general partner or managing entity.
“Surviving Corporation” is defined in Section 1.1.
“Target Closing Net Working Capital” means $135,700,000.
“Tax” means (a) any federal, state, local, or foreign tax, charge, duty, fee, escheat or unclaimed
property, levy or other assessment, including income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A
of the Code), customs duties, capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real or personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, whether disputed or not, imposed by
any taxing authority, and including any interest, penalty, or addition thereto, (b) any liability for the payment
of any amount imposed on any Person of the type described in clause (a) as a result of being or having been
a member of an affiliated, consolidated, combined, unitary or similar group for Tax purposes, and (c) any
liability for the payment of any amount imposed on any Person of a type described in clause (a) or clause
(b) as a transferee or successor or as a result of any existing express or implied indemnification agreement
or arrangement.
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“Tax Contest” is defined in Section 10.3(b).
“Tax Returns” means all returns, declarations, reports, claims for refund, information statements
and other documents relating to Taxes, including all schedules and attachments thereto, and including all
amendments thereof.
“Third-Party Claim” is defined in Section 9.5(a).
“Transaction Documents” means the Letters of Transmittal, the Promissory Note, the Mortgage, the
Option Consent Agreements, the Restricted Stock Unit Consent Agreement and the letter agreement, dated
as of the date hereof, between Sphere and Parent.
“Transaction Expenses” means (i) all fees, costs and expenses (including investment bankers and
financial advisors, attorneys’ and accountants’ reasonable fees, costs and expenses) incurred by the Company
(on behalf of the Company or any Equityholder) in connection with the transactions contemplated by this
Agreement and (ii) the change of control bonus payments payable to Don Wittkopp, Tom Berger and Martha
Asselin in the cumulative amount of $100,000, plus all applicable payroll Taxes and withholding Taxes. For
the avoidance of doubt, Transaction Expenses shall not include any payments made to the Option Holders
or the holders of Restricted Stock Units in connection with the cancellation of the Stock Options and the
Restricted Stock Units, but shall include the cost of the run-off directors’ and officers’ liability insurance
policy purchased in accordance with Section 6.4(c).
“Union” is defined in Section 3.18(b).
“Unpaid Class B Dividends” means the aggregate unpaid amount of the dividends declared by the
Company with respect to the outstanding shares of Class B Common Stock, which aggregate amount, as of
the date of this Agreement, is $7,770,495.
“WARN Act” means the Worker Adjustment and Retraining Notification Act of 1988, and any other
similar Applicable Law of any state, locality or other Governmental Entity.
“WC Deficiency” is defined in Section 2.6(d).
“WC Estimated Surplus” means the amount, if any, by which the Estimated Closing Net Working
Capital is greater than the Target Closing Net Working Capital.
11.2. Construction.
(a)
Any rule of construction to the effect that ambiguities are to be resolved against the
drafting Party shall not be applied in the construction or interpretation of this Agreement.
(b)
The words “include” and “including” and variations thereof shall not be deemed to
be terms of limitation, but rather shall be deemed to be followed by the words “without limitation”.
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(c)
Except as otherwise indicated, all references in this Agreement to “Articles”,
“Sections”, “Exhibits” and “Schedules” are intended to refer to the Articles and Sections of this Agreement,
and to the Exhibits and Schedules to this Agreement, including the Disclosure Letter, as the context may
require. All such Exhibits and Schedules, including the Disclosure Letter, shall be deemed a part of, and are
hereby incorporated by this reference into, this Agreement.
(d)
As used in this Agreement, a document shall be deemed to have been “made
available” to Parent if, prior to the date of this Agreement and through the date of this Agreement, such
document has been made available for viewing by Parent in the electronic data room established by the
Company in connection with the transactions contemplated by this Agreement.
(e)
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
ARTICLE XII
GENERAL PROVISIONS
12.1. Equityholders Representative; Power of Attorney.
(a)
The Company hereby initially appoints Sphere as the Equityholders Representative,
as the true and lawful agent and attorney-in-fact of the Equityholders to take any action (or refrain from
taking any action) on behalf of the Equityholders that is contemplated to be taken by the Equityholders
Representative in that capacity by this Agreement, including to (i) give and receive notices and
communications to or from Parent (on behalf of itself or any other Indemnified Party) relating to this
Agreement or the Promissory Note, or any of the transactions and other matters contemplated hereby or
thereby (except to the extent that this Agreement or the Promissory Note expressly contemplates that any
such notice or communication shall be given or received by the Equityholders individually); (ii) object to
any claims pursuant to Section 9.4 or Section 9.5; (iii) consent or agree to, negotiate, enter into settlements
and compromises of, and agree to arbitration and comply with orders of courts and awards of arbitrators
with respect to, such claims; (iv) assert, negotiate, enter into settlements and compromises of, and agree to
arbitration and comply with orders of courts and awards of arbitrators with respect to, any other claim by
any Indemnified Party relating to this Agreement, the Promissory Note or the transactions contemplated
hereby or thereby; (v) amend this Agreement or the Promissory Note to reduce the principal amount of the
Promissory Note as contemplated by this Agreement); and (vi) take all actions necessary or appropriate in
the judgment of the Equityholders Representative for the accomplishment of the foregoing, in each case
without having to seek or obtain the consent of any Person under any circumstance. Sphere hereby accepts
such appointment and agrees to act in such capacity. The Person serving as the Equityholders Representative
may be replaced at any time by the Equityholders who held a majority of the shares of voting Common Stock
immediately prior to the Effective Time. No bond shall be required of the Equityholders Representative,
and the Equityholders Representative shall receive no compensation for its services.
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(b)
The Equityholders Representative shall not be liable to any Person for any act done
or omitted hereunder as the Equityholders Representative while acting in good faith and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Equityholders
Representative shall be reimbursed from the Equityholders Representative Holdback Amount for any
reasonable expenses (including the reasonable fees of counsel) incurred in the performance of the
Equityholders Representative’s duties hereunder. Notwithstanding anything to the contrary in this
Agreement, if the Equityholders Representative reasonably believes that payments for which it is to be
reimbursed from the Representative Holdback Amount pursuant to this Section 12.1(b) or payments in respect
of indemnification obligations set forth in Section 9.2(a) are likely to be made in the future, then the
Equityholders Representative may withhold the estimated amount of such future payments from any amounts
otherwise required to be distributed to the Equityholders under this Agreement.
(c)
Each Stockholder Party agrees that Parent shall be entitled to unconditionally
assume that any action taken or omitted, or any document executed by, Sphere purporting to act as
Equityholders Representative under or pursuant to this Agreement or in connection with any of the
transactions contemplated by this Agreement has been authorized by the Equityholders to be taken, omitted
to be taken or executed on such Equityholders’ behalf so that such Equityholders will be legally bound
thereby, and each Stockholder Party agrees not to institute any claim, lawsuit, arbitration or other proceeding
against Parent alleging that Sphere did not have the authority to act as the Equityholders Representative on
behalf of the Equityholders in connection with any such action, omission or execution. No modification or
revocation of the power of attorney granted by the Stockholder Parties to Sphere to serve as the Equityholders
Representative shall be effective as against Parent until Parent has received a document signed by
Stockholders holding Common Stock representing a majority of the voting power of the Company
immediately prior to the Effective Time effecting said modification or revocation.
(d)
The Equityholders Representative may resign at any time by giving thirty (30) days’
written notice to Parent and the Stockholders; provided, however, that such resignation shall not be effective
unless and until a successor stockholders’ representative has been appointed by Stockholders holding
Common Stock representing a majority of the voting power of the Company immediately prior to the Effective
Time and such successor accepts such position and the terms hereof.
(e)
If the Equityholders Representative is a natural Person and dies or is otherwise
unable to perform his or her obligations under this Agreement or, if the Equityholders Representative is not
a natural Person and becomes bankrupt, insolvent or ceases to exist, then a successor to the Equityholders
Representative shall be appointed by Stockholders holding Common Stock representing a majority of the
voting power of the Company immediately prior to the Effective Time.
12.2. Expenses. Except as otherwise specifically provided herein, each Party shall bear all fees,
costs and expenses (including investment bankers and financial advisors, attorneys’ and accountants’ fees,
costs and expenses) incurred by such Party in connection with the transactions contemplated by this
Agreement.
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12.3. Public Announcements. No public release or announcement concerning the Merger or the
transactions contemplated hereby shall be issued by any Party without the prior written consent of Parent
and the Company (for any such release or announcement prior to the Effective Time) or the Equityholders
Representative (for any such release or announcement after the Effective Time), which consent shall not be
unreasonably withheld or delayed, except as such release or announcement may be required by Applicable
Law or the rules or regulations of any stock exchange or applicable Governmental Entity to which the relevant
Party is subject, in which case the Party required to make the release or announcement shall use its
commercially reasonable efforts to provide the other Party reasonable time to comment on such release or
announcement in advance of such issuance, it being understood that the final form and content of any such
release or announcement, to the extent so required, shall be at the final discretion of the disclosing Party;
provided, that this Section 12.3 shall not apply to (i) Parent’s filings with the Securities and Exchange
Commission on forms 10-Q, 10-K or 8-K, including any filing that includes this Agreement as an exhibit or
(ii) any regularly scheduled earnings call conducted by Parent.
12.4. Notices. All notices and other communications hereunder shall be in writing and shall be
deemed given if properly addressed as provided below as follows: (a) if delivered personally or by facsimile
or other electronic transmission (with acknowledgment of a complete transmission), on the day of delivery;
(b) if delivered by a nationally recognized courier (appropriately marked for next day delivery), one
(1) Business Day after dispatch; or (c) if delivered by registered or certified mail (return receipt requested) or
by first class mail, three (3) Business Days after mailing. Notices shall be deemed to be properly addressed
if addressed to the following addresses or facsimile numbers (or at such other address or facsimile number
as shall be specified by like notice):
(a)
if to Parent or Merger Sub (or to the Surviving Corporation after the Effective Time),
to:
LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, Illinois 60661
Attention: General Counsel
Facsimile: (312) 207-1529
with a copy (which shall not constitute notice) to:
K&L Gates LLP
70 West Madison Street, Suite 3100
Chicago, Illinois 60602
Attention: J. Craig Walker
Facsimile: (312) 827-8179
Email: craig.walker@klgates.com
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(b)
if to the Company prior to the Effective Time, to:
Keystone Automotive Holdings, Inc.
44 Tunkahannock Avenue
Exeter, PA 18643
Attention: President
Facsimile: (570) 655-8203
with a copy (which shall not constitute notice) to:
Bingham McCutchen LLP
600 Anton Boulevard, Suite 1800
Costa Mesa, CA 92626
Attention: James W. Loss, Esq.
Facsimile: (714) 830-0726
(c)
if to the Equityholders Representative to:
Sphere Capital, LLC-Series A
360 North Crescent Drive, South Building
Beverly Hills, CA 90210
Attention: General Counsel
Facsimile: (310) 712-1863
with a copy (which shall not constitute notice) to:
Bingham McCutchen LLP
600 Anton Boulevard, Suite 1800
Costa Mesa, CA 92626
Attention: James W. Loss, Esq.
Facsimile: (714) 830-0726
12.5. Entire Agreement. This Agreement, the Exhibits and the Schedules hereto, including the
Disclosure Letter, the Transaction Documents and the Confidentiality Agreement constitute the entire
agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements
and understandings, both written and oral, among the Parties with respect to the subject matter hereof.
12.6. Severability. In the event that any provision of this Agreement or the application thereof
becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder
of this Agreement will continue in full force and effect and the application of such provision will be interpreted
so as reasonably to effect the intent of the Parties. The Parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the
greatest extent possible, the economic, business and other purposes of such void or unenforceable provision.
12.7. Specific Performance. The Parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the Parties shall be
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entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled at Law or in equity.
12.8. Successors and Assigns; Assignment; Parties in Interest. This Agreement shall inure to the
benefit of, and be binding on, the Parties and their respective successors and assigns (if any). Except as
otherwise specifically provided herein, no Party may assign any of its rights or delegate any of its obligations
under this Agreement without the prior written consent of the other Parties. Nothing in this Agreement,
express or implied, is intended to or shall confer upon any Person other than a Party any rights, interests,
benefits or other remedies of any nature under or by reason of this Agreement, except that the indemnification
provisions of this Agreement are intended to benefit the Indemnified Parties, and the provisions of Section
6.4 are intended to benefit the Covered Persons, and all such intended third-party beneficiaries shall be
entitled to enforce such provisions of this Agreement.
12.9. Amendment; Waiver. This Agreement may be amended by the Parties only by execution
of an instrument in writing signed by (a) Parent and the Company if such instrument is executed prior to the
Effective Time or (b) Parent and the Equityholders Representative if such instrument is executed after the
Effective Time. At any time prior to the Effective Time, Parent and Merger Sub, on the one hand, and the
Company, on the other, may, to the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other Parties, (ii) waive any inaccuracies in the representations and warranties made
to such Party contained herein or in any document delivered pursuant hereto or (iii) waive compliance with
any of the agreements or conditions for the benefit of such Party contained herein. Any agreement by any
Party to any such extension or waiver shall be valid only if, and to the extent, set forth in an instrument in
writing signed on behalf of such Party. No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power,
right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right privilege or remedy shall preclude any
other or further exercise thereof or of any other power, right, privilege or remedy.
12.10. Governing Law; Venue.
(a)
This Agreement shall be construed in accordance with, and governed in all respects
by, the internal Laws of the State of Delaware, without giving effect to conflicts of law or choice of law
provisions thereof.
(b)
Unless otherwise explicitly provided in this Agreement, any Legal Action relating
to this Agreement or the enforcement of any provision of this Agreement shall be brought or otherwise
commenced in any state or federal court located in the State of Delaware. Each Party (i) expressly and
irrevocably consents and submits to the jurisdiction of each such court, and each appellate court located in
the State of Delaware, in connection with any such Legal Action, (ii) agrees that each such court shall be
deemed to be a convenient forum and (iii) agrees not to assert, by way of motion, as a defense or otherwise,
in any such Legal Action commenced in any such court, any claim that such Party is not subject personally
to the
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jurisdiction of such court, that such Legal Action has been brought in an inconvenient forum, that the venue
of such Legal Action is improper or that this Agreement or the subject matter of this Agreement may not be
enforced in or by such court.
12.11. Waiver of Jury Trial. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY
TRANSACTION AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. EACH PARTY HERETO CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY OR OTHERWISE THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 12.11.
12.12. Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly
conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude
the exercise of any other remedy.
12.13. Counterparts; Electronic Delivery. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which together shall constitute one and
the same instrument. Any signature page delivered by facsimile or electronic image transmission shall be
binding to the same extent as an original signature page. Any Party that delivers a signature page by facsimile
or electronic image transmission shall deliver an original counterpart to any other Party that requests such
original counterpart, it being understood and agreed that the failure to deliver any such original counterpart
upon request shall not affect the binding nature of the signature page delivered by facsimile or electronic
image transmission.
[Signature Page Follows]
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed and delivered
by its duly authorized representative as of the date first written above.
THE COMPANY:
PARENT:
KEYSTONE AUTOMOTIVE HOLDINGS,
INC.
LKQ CORPORATION
By:
Name:
Title:
/s/ EVA M. KALAWSKI
Eva M. Kalawski
By:
Name:
/s/ ROBERT L. WAGMAN
Robert L. Wagman
Vice President and Secretary
Title:
President and CEO
MERGER SUB:
KAH ACQUISITION SUB, INC.
By:
Name:
Title:
/s/ ROBERT L. WAGMAN
Robert L. Wagman
President
STOCKHOLDER PARTIES:
SPHERE CAPITAL, LLC - SERIES A
By:
Name:
Title:
/s/ EVA M. KALAWSKI
Eva M. Kalawski
Vice President and Secretary
CETUS CAPITAL, LLC
By:
Name:
Title:
/s/ ROBERT E. DAVIS
Robert E. Davis
Managing Director
EQUITYHOLDERS REPRESENTATIVE:
SPHERE CAPITAL, LLC - SERIES A
By:
Name:
Title:
/s/ EVA M. KALAWSKI
Eva M. Kalawski
Vice President and Secretary
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Exhibit A - Form of Promissory Note
Confidential
THE SECURITY REPRESENTED BY THIS NOTE (AS DEFINED BELOW) WAS ORIGINALLY
ISSUED ON THE ISSUE DATE (AS DEFINED BELOW), AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND CERTAIN RIGHTS OF OFFSET SET FORTH HEREIN.
The Stockholder Parties (as defined in the Merger Agreement) have made certain representations and
warranties, entered into certain covenants and agreed to provide certain indemnities as set forth in the Merger
Agreement (as defined below). Holder agrees that, in addition to any other remedy that Maker (as defined
below) may have available at law or equity and subject in all cases to the limitations set forth in the Merger
Agreement, Maker may, subject to the limitations and procedures set forth in the Merger Agreement and this
Note (as defined below), reduce the amount outstanding under this Note by any Loss (as defined below) for
which the Stockholder Parties are responsible under the Merger Agreement.
NON-NEGOTIABLE SECURED
PROMISSORY NOTE
Issue Date:
[ ], 2014 $31,500,000
Original Principal Amount:
FOR VALUE RECEIVED, LKQ Corporation, a Delaware corporation (“Maker”), hereby promises
to pay to the order of Sphere Capital, LLC – Series A, a Delaware limited liability company, in its capacity
as the designated representative of the Equityholders (as defined in the Merger Agreement) (together with
its successor and assigns in such capacity as permitted by the terms of the Merger Agreement or applicable
Laws, the “Holder”), the principal amount of $31,500,000, or such lesser principal amount then outstanding,
together with interest thereon calculated in accordance with the provisions of this non-negotiable secured
promissory note (this “Note”).
This Note is the Promissory Note referred to in, and originally issued on [ ], 2014 (the “Issue
Date”) pursuant to, the Merger Agreement. Each capitalized term used but not otherwise defined herein
shall have the meaning ascribed to such term in Section 6 hereof or, if not so defined therein, the meaning
ascribed to such term in the Merger Agreement.
1.
Interest. Commencing on the Issue Date and continuing until payment of all amounts due hereunder,
interest shall accrue on the then outstanding principal amount of this Note at the rate (the “Interest Rate”)
of one percent (1%) per annum (based on a year of 365 days and computed on the number of days actually
elapsed).
2.
Payments on Note.
Scheduled Payment. Subject to Section 2(e) below, the outstanding principal amount of this Note
(a)
and unpaid accrued interest thereon shall be due and payable on the fifteen (15) month anniversary of the
Issue Date or such earlier date as shall be specified pursuant to Section 5(b) or
as permitted pursuant to applicable Laws (the “Maturity Date”), and Maker shall
1
pay such amounts on such date. Any payment shall be applied first to accrued interest and then to outstanding
principal.
(b)
Optional Prepayments. Maker may, at any time or from time to time, without premium or
penalty, prepay all or any portion of the unpaid principal amount of this Note together with any unpaid
interest which has accrued on the portion of the principal so prepaid. Any payment shall be applied first to
accrued interest and then to outstanding principal.
(c)
Time of Payment. If any payment on this Note becomes due on a day that is not a Business
Day, then such payment shall be made on the next Business Day and such extension of time will be included
in computing interest in connection with such payment.
(d)
Right of Setoff. The principal amount of this Note shall be reduced, retroactive to the Closing
Date, by any amounts for which Losses by Parent or the Surviving Corporation is entitled to indemnification
pursuant to Sections 9.2(a) or 10.1 of the Merger Agreement (whether now existing or hereinafter arising)
in accordance with Section 9.4(b) of the Merger Agreement. Notwithstanding anything to the contrary set
forth herein, the satisfaction or reduction of any principal or interest hereunder pursuant to Maker’s right of
setoff under this Section 2(d) shall not be considered a prepayment for the purposes hereof.
(e)
Payments in Cash. All payments on this Note shall be made in cash (it being understood
that any reduction pursuant to Section 2(d) or the Merger Agreement in amounts owing under this Note shall
not be deemed to be, or treated as, payments or prepayments for purposes of this Section 2(e)).
(f)
Equityholders Representative. The Holder shall (i) disburse any payments made to it under
this Note to the Equityholders in accordance with Section 2.6(e) of the Merger Agreement and (ii) have
authority on behalf of the Equityholders, to contest or settle any Pending Claim, and any agreement between
Maker and the Holder with respect to any Pending Claim shall be binding on the Equityholders.
(g)
Limitation on Repayment and Prepayment. For the avoidance of doubt, notwithstanding
any other provision of this Note or the Merger Agreement, no repayment or prepayment of any amount owed
under this Note, whether pursuant to Section 2 or otherwise, shall be made, and no such failure to make such
repayment shall constitute an Event of Default pursuant to Section 5(a), in each case if the principal amount
outstanding under this Note after such repayment or prepayment would be less than the amount that would
be required to satisfy in full the Aggregate Pending Claim Amount.
Mortgage(s). The payment and performance in full of each of the obligations hereunder, including,
3.
without limitation, the payment in full of the amounts due hereunder by Maker, is secured by all that certain
real estate and improvements thereon, erected or to be erected, situate in the Borough of Exeter, County of
Luzerne, Commonwealth of Pennsylvania, and more particularly described in Exhibit “A” attached hereto
and made a part hereof.
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4.
Representations.
(a)
Organization and Standing. Maker is duly incorporated and validly existing under the laws
of Delaware. Maker is in good standing in those jurisdictions in which its ownership of property or conduct
of business requires such qualification. Keystone Automotive Operations, Inc. (“Mortgagor”) is duly
incorporated and validly existing under the laws of Pennsylvania. Mortgagor is in good standing in those
jurisdictions in which its ownership of property or conduct of business requires such qualification.
(b)
Authority. Maker has full right, power and authority to execute, deliver and perform its
obligations under this Note. Mortgagor has full right, power and authority to execute, deliver and perform
its obligations under the Mortgage.
(c)
Execution and Delivery. The execution and delivery by Maker of this Note has been duly
authorized by all necessary corporate action. The execution and delivery by Mortgagor of the Mortgage has
been duly authorized by all necessary corporate action
(d)
Enforceability. Maker has duly executed and delivered this Note and this Note constitutes
Maker’s legal, valid and binding obligation, enforceable against it in accordance with its terms, and Mortgagor
has duly executed and delivered the Mortgage and the Mortgage constitutes Mortgagor’s legal, valid and
binding obligation, enforceable against it in accordance with its terms, in each case, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws relating
to or affecting the enforcement of creditors’ rights in general and by general principles of equity.
(e)
No Conflicts. The execution, delivery and performance of this Note by Maker and the
execution and delivery of the Mortgage by Mortgagor, do not conflict with, or result in any violation or
breach of or default (with or without notice or lapse of time, or both) under, result in acceleration of, or give
rise to a right of termination, cancellation, modification or acceleration of any obligation under, require any
notice under, or result in the imposition or creation of any lien (other than in favor of Holder) upon any of
the material properties or assets of Maker or Mortgagor under, any provision of (i) the organizational
documents of Maker or Mortgagor, (ii) any material agreement to which Maker or Mortgagor is a party or
by which any of Maker or Mortgagor’s material properties or assets is bound, or (iii) any judgment or law
applicable to Maker, Mortgagor or their respective material properties or assets.
5.
Defaults and Remedies.
(a)
Events of Default. An “Event of Default” shall occur under this Note if:
(i)
Maker shall fail to make any payment of unpaid principal or accrued interest under
this Note, when and as the same shall become due and payable upon the occurrence of the Maturity Date
pursuant to and in accordance with this Note;
(ii)
An Insolvency Event shall occur;
(iii) Maker or any of its Affiliates shall fail to perform or observe any covenant or other
agreement contained herein or in the Mortgage (other than as set forth in clause (a)(i)
3
above) and such failure continues for a period of 10 days after the earlier of (A) the date on which such
failure shall first become known to Maker or any of its Affiliates or (B) the date on which written notice
thereof is delivered to Maker or Mortgagor;
(iv)
Any representation or warranty herein or in the Mortgage proves to be untrue in any material
respect when made or deemed made;
(v)
The validity or enforceability of this Note or the Mortgage shall at any time for any reason
be declared to be null and void, or a proceeding shall be commenced by Maker, Mortgagor or any of their
respective Affiliates, or by any governmental authority having jurisdiction over Maker, Mortgagor or any
of their respective Affiliates, seeking to establish the invalidity or unenforceability thereof, or Maker,
Mortgagor or any of their respective Affiliates shall deny (to the extent it is a party thereto) that it has any
liability or obligation under this Note or the Mortgage.
(b)
Remedies. So long as an Event of Default shall have occurred and is continuing:
(i)
Upon and after the election of the Holder on behalf of the Equityholders, the interest
rate hereunder shall increase from one percent (1%) to five percent (5%) per annum; provided, however,
that such rate shall automatically increase as a result of an Event of Default described in Sections 5(a)(i) or
5(a)(ii). Any increase of the interest rate resulting from the operation of this Section 5(b)(i) shall, at the
option of Holder, be retroactive to the date upon which such Event of Default shall have occurred and
terminate as of the close of the business on the date on which such Event of Default is waived by the Holder.
(ii)
Upon and after the election of the Holder on behalf of the Equityholders, declare
the aggregate unpaid principal amount of this Note and all accrued interest thereon to be immediately due
and payable and Maker shall immediately pay to the then holder of this Note all such amounts, in full, without
presentment, demand, protects or further notice or other requirements of any kinds, all of which are hereby
expressly waived by Maker; provided, however, that if an Event of Default of the type described in Section
5(a)(ii) hereof occurs, no such election shall be required and the aggregate unpaid principal amount of this
Note and all accrued interest thereon shall become immediately due and payable without any action on the
part of the Holder and Maker shall immediately pay to the then holder of this Note, all such amounts, in full.
6.
Definitions.
“Aggregate Pending Claim Amount” at any time means the aggregate of all Losses, as set forth in
Claim Certificate delivered pursuant to Section 9.4(a) of the Merger Agreement, in respect of Pending Claims.
“Insolvency Event” means if: (i) Maker or any of its Affiliates commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a
4
receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its
assets, or Maker or any of its Affiliates shall make a general assignment for the benefit of its creditors; or
(ii) there is commenced against Maker or any of its Affiliates any case, proceeding or other action of a nature
referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there is
commenced against Maker or any of its Affiliates any case, proceeding or other action seeking issuance of
a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets
that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed
or bonded pending appeal within sixty (60) days from the entry thereof.
“Merger Agreement” means the Agreement and Plan of Merger dated as of December 5, 2013, by
and among the Keystone Automotive Holdings, Inc., Maker, Merger Sub, the Stockholder Parties, and the
Holder.
“Mortgage” means the Mortgage, effective as of the date hereof, by and between Keystone
Automotive Operations, Inc. and Holder, as the same may be amended, restated, supplemented or otherwise
modified from time to time in accordance with its terms.
“Pending Claim” means any claim made by Parent or the Surviving Corporation as reflected in a
Claim Certificate delivered pursuant to Section 9.4(a) of the Merger Agreement, other than a claim which
theretofore has been finally resolved in accordance with Section 9.4(b) of the Merger Agreement.
7.
Amendment and Waiver. The provisions of this Note may be amended if, and Maker may take any
action herein prohibited or omit to perform any act herein required to be performed by it if, and only if,
Maker has obtained the written consent of the Holder, in its sole discretion. No failure on the part of either
party hereto to exercise any right or remedy hereunder shall constitute a waiver of that right or remedy.
Restrictions on Transfer. Maker may not sell, transfer, assign or otherwise dispose of all or any part
8.
of its obligations under this Note. So long as no Event of Default shall have occurred and be continuing,
the Holder may not sell, transfer, assign, negotiate, pledge or otherwise dispose of all or any portion of or
any interest in this Note (and any purported sale, transfer, assignment, negotiation, pledge or other disposition
in violation of this provision shall be void) other than to any successor representative of the Equityholders
to the extent permitted by the terms of the Merger Agreement or applicable Laws.
9.
Cancellation. After all principal and accrued interest at any time owed on this Note has been paid
in full, this Note shall be surrendered by the Holder to Maker for cancellation and shall not be reissued;
provided, however, that if any amounts paid to Holder hereunder are required to be repaid, refunded, restored
or returned to Maker or any of its Affiliates for any reason, whether because such payment is asserted or
declared to be void, voidable or otherwise recoverable under any law relating to fraudulent transfers,
preferences, creditors rights generally or otherwise, then as to any such amount, the obligations under this
Note shall be immediately and automatically revived, restored and reinstated together with any corresponding
lien on the assets or Maker or
5
any of its Affiliates to the extent such lien existed prior to payment in respect of the obligations hereunder.
Place of Payment; Notices. Payments of principal and interest are to be made by Maker in the lawful
10.
money of the United States of America in immediately available funds to the Holder on behalf of the
Equityholders to the account specified by the Holder not less than three (3) Business Days prior to the
Maturity Date.
11.
Governing Law. All issues and questions concerning the construction, validity, enforcement and
interpretation of this Note shall be governed by, and construed in accordance with, the laws of the State of
Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the
State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
12.
No Strict Construction. Maker and the Holder have participated jointly in the negotiation and drafting
of this Note. In the event an ambiguity or question of intent or interpretation arises, this Note shall be
construed as if drafted jointly by Maker and the Holder, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provision of this Note.
13. Waiver of Jury Trial. THIS NOTE IS ISSUED SUBJECT TO THE EXPRESS UNDERSTANDING
THAT EACH OF HOLDER AND MAKER HAS WAIVED, ON BEHALF OF ITSELF OR, WITH
RESPECT TO HOLDER, THE EQUITYHOLDERS UNDER THIS NOTE, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT ANY SUCH PARTY MAY HAVE TO A TRIAL BY
JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE.
Consent to Jurisdiction; Enforcement Expenses. Each of Maker and Holder hereby irrevocably
14.
submits to the jurisdiction of any state or federal court located in the State of Delaware, for the purposes of
any suit, action or other proceeding arising out of this Note. Each of Maker and Holder further agrees that
service of any process, summons, notice or document by U.S. registered mail to such party’s respective
address set forth below shall be effective service of process for any action, suit or proceeding arising out of
this Note. Each of Maker and Holder irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Note or the transactions contemplated hereby in
any state or federal court located in the State of Delaware and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought
in any such court has been brought in an inconvenient forum.
15.
Notices. Notice shall be given as set forth in Section 12.4 of the Merger Agreement.
* * * * * *
6
IN WITNESS WHEREOF, Maker has executed and delivered this Note on the date first
above written.
LKQ CORPORATION
By:_________________________________
Name:
Title:
THE UNDERSIGNED HOLDER HEREBY
ACKNOWLEDGES AND AGREES TO
THE TERMS SET FORTH ABOVE,
AS OF THE DATE ABOVE
SPHERE CAPITAL, LLC - SERIES A
By:______________________________________
Name:
Title:
7
Exhibit A
Legal Description
PROPERTY 1:
Parcel 1: (DBK 2647, Pg 1196)
ALL THAT CERTAIN piece or parcel of land situated in the Borough of Exeter, County of Luzerne and
Commonwealth of Pennsylvania bounded and described as follows, to wit:
BEGINNING at a concrete monument in the southerly sideline of Pennsylvania State Highway, Legislative Route
No. 11 (Extension), also known as Back Road, said point monument also being in the dividing line between lands
now or formerly of Joseph and Anita DePascale as recorded in Luzerne County Deed Book 1680, Page 515 and the
lands herein described;
THENCE from said concrete monument and along said dividing line, and along lands now or formerly of Joseph
Mirra, et. ux., South 34 degrees 13 minutes East, two hundred thirty-seven and thirty one hundredths (237.30) feet to
a point in the northwesterly right-of-way line of the Lehigh Valley Railroad Company (West Pittston Branch);
THENCE from said point and along said right-of-way line, South 43 degrees 36 minutes West, one thousand one
hundred twenty-one and twenty-five one-hundredths (1,121.25) feet to a point in the northeasterly sideline of
Stevens Lane;
THENCE from said point and along said Stevens Lane sideline, North 29 degrees 28 minutes West, one hundred
fifty-six and fifty-five one-hundredths (156.55) feet to a point on the southerly bank of Hick's (Carpenter's) Creek;
THENCE from said point and along the southerly bank of said Creek, along the end of Stevens Lane, along lands
now or formerly State Automotive Corporation as recorded in Luzerne County Deed Book 1865 at Page 401, and
along lands now or formerly of the Greater Pittston Chamber of Commerce as recorded in Luzerne County Deed
Book 1908 at Page 622, by the two (2) following described lines: (1) North 79 degrees 00 minutes West, three
hundred twenty-two and eighty-six one-hundredths (322.86) feet to a point; (2) South 81 degrees 55 minutes West,
three hundred seventy-two and eighty-six one-hundredths (372.86) feet to a point in line of lands now or formerly of
The First Ward Social Club of Exeter as recorded in Luzerne County-Deed Book 1529, at Page 458;
THENCE from said point and along said lands, North 12 degrees 01 minute West, four hundred eighty-seven
(487.00) feet to a point in the aforesaid sideline of the Back Road;
THENCE from said point and along said sideline by the two (2) following described lines: (1) North 74 degrees 03
minutes East, ninety-seven and seventy-eight one-hundredths (97.78) feet to a point; (2) North 75 degrees 42
minutes East, one thousand four hundred fifty-five and twenty-eight one-hundredths (1,455.28) feet to a point, the
place of BEGINNING.
CONTAINING 20.087 acres, be the same more or less.
8
PARCEL 2: (DBK 2293, Page 1197)
ALL the surface and right of soil of all that certain piece or parcel of land situate in the Borough of Exeter, County
of Luzerne and Commonwealth of Pennsylvania, bounded and described as follows, to wit:
BEGINNING at a point in the southerly right-of-way line of State Highway Route #11, Extension, known as the
"Back Road", and located about one thousand nine hundred eighty (1,980) feet westwardly along said highway from
the center of Exeter Avenue, said point also being the northwesterly corner of Parcel #1 conveyed to the Pittston
Area Industrial Development by Deed dated April 15, 1957; THENCE along the westerly side of said Parcel #1 of
Pittston Area Industrial Development, South 14° 35' East, five hundred thirteen (513) feet, more or less, to a point in
the southerly side of Carpenter's Creek, said point also being the southwesterly corner of Parcel #1 aforesaid;
THENCE westwardly along the said southerly side of Carpenter's Creek also being the northerly line of Parcel #3 of
Deed above-mentioned dated April 15, 1957, ninety (90) feet, more or less, to a point; THENCE North 14° 35' West,
five hundred (500) feet, more or less, to a point in the southerly right-of-way line of State Highway Route #11
Extension aforesaid; THENCE eastwardly along said right-of-way line, ninety (90) feet, more or less, to the place of
BEGINNING.
CONTAINING one acre, more or less.
PARCEL 3:
ALL those certain pieces or parcels of land situate in the Borough of Exeter, County of Luzerne and State of
Pennsylvania, bounded and described as follows, to wit:
PURPART NO. 1: (DBK 2283, Page 930)
BEGINNING at a point in the southeasterly right-of-way line of State Highway Route No. 11 extension, Back Road,
said point being the Northwest corner of a parcel of land conveyed by Troback Development Company to the First
Ward Social Club of Exeter, by Deed dated September 9, 1963, and recorded in Luzerne County Deed Book 1529,
page 458;
THENCE along said lands now or formerly of the First Ward Social Club of Exeter, South fourteen degrees fifteen
minutes East, four hundred eighty-three and ninety-four hundredths (483.94) feet to a point in line of lands now or
formerly of Jewelcor Incorporated;
South seventy-six degrees forty-nine minutes forty-six seconds West, twenty-eight and fifty-six hundredths
THENCE along lands now or formerly of Jewelcor Incorporated the following two (2) courses and distances:
(1)
(28.56) feet to a point;
(2)
tenths (71.44) feet to a point:
South seventy-five degrees forty-seven minutes twenty-four seconds West, seventy one and forty-four
THENCE through other lands of the Grantors herein, North fourteen degrees 15 minutes West (N. 14° 15' W.) four
hundred seventy-two (472) feet more or less to a point on the Southeasterly right-of-way of State Highway Rt. 11
extension, Back Road;
THENCE along the Southeasterly right-of-way of State Highway Rt. 11, Back Road, North sixty-six degrees thirty-
nine minutes forty-three seconds East (N. 66° 39' 43" E.) one hundred (100) feet to the place of BEGINNING.
9
PURPART NO. 2: (DBK 2283, Page 930)
BEGINNING at a point in the southeasterly right-of-way line of State Highway Route No. 11 extension, Back Road,
said point being the Northwest corner of a parcel of land conveyed to Elvira Chiavacci, a/k/a Vera Chiavacci and
Jacquelyn E. Troback, by and through H. Deno Chiavacci, Attorney In Fact to James H. Belmont and Carmena T.
Belmont, his wife, by deed dated May 13, 1982, and recorded in Luzerne County Deed Book 2073 at page 1027;
THENCE along said lands now or formerly of James S. Belmont and Carmena T. Belmont, South fourteen degrees
fifteen minutes East, (S. 14° 15' E.) four hundred seventy-two feet more or less to a point in line of lands now or
formerly of Jewelcor, Incorporated;
South seventy-five degrees forty-seven minutes twenty-four seconds West, thirty-three and twenty-six
THENCE along the lands now or formerly of Jewelcor, Incorporated the following three (3) courses and distances:
(1)
hundredths (33.26) feet to a point;
(2)
(52.20) feet to a point;
(3)
South forty degrees twenty minutes thirty-two seconds West, twenty-seven feet plus or minus to a point;
South seventy-five degrees fifteen minutes fifty-seven seconds West, fifty-two and twenty hundredths
THENCE through other lands of the Grantors herein, North fourteen degrees fifteen minutes West (N. 14° 15' W)
four hundred sixty-two feet (462) more or less to a point on the Southeasterly right-of-way of State Highway Rt. 11,
extension, Back Road;
THENCE along the said Southeasterly right-of way of State Highway Rt. 11, Back Road, North sixty-four degrees
twenty-five minutes East (N. 64° 25' E.) fourteen and fifty-eight hundredths (14.58) feet to a point;
THENCE along the said Southeasterly right-of-way of State Highway Rt. 11, Back Road, North sixty-six degrees
thirty-nine minutes forty-three seconds East, eighty-five and forty-two hundredths (85.42) feet to the place of
BEGINNING.
PARCEL 4: (RBK 3005, Page 185663)
ALL THAT CERTAIN piece or parcel of land situate in the Borough of Exeter, County of Luzerne and State of
Pennsylvania, bounded and described as follows, to wit:
BEGINNING at a point in the southeasterly right-of-way line of State Highway Route No. 11 extension, Back Road,
said point being the Northwest corner of a parcel of land conveyed by Elvira Chiavacci, a/k/a Vera Chiavacci and
Jacquelyn E. Troback by and through H. Deno Chiavacci, attorney in fact to James S. Belmont and Carmena T.
Belmont, his wife, by deed dated June 20, 1983 and recorded in the Office of the Recorder of Deeds of Luzerne
County In Deed Book 2105, page 170;
THENCE along said lands now or formerly of James S. Belmont and Carmena T. Belmont, his wife, South fourteen
degrees fifteen minutes East (S. 14° 15' E.) four hundred sixty and ten one-hundredths (460.10) feet more or less to a
point in line of lands now or formerly of Jewelcor Incorporated;
THENCE along the lands now or formerly of Jewelcor Incorporated the following two (2) courses and directions:
(1)
South forty degrees twenty minutes thirty-two seconds West, seventy-three and twenty-five hundredths
(73.25) feet to a point;
10
South fifty-six degrees twenty-two minutes thirty-seven seconds West, forty and sixty-five hundredths feet
(2)
plus or minus to a point;
THENCE through other lands now or formerly of Chiavacci, North fourteen degrees fifteen minutes West (N. 14°
15' W) four hundred ninety-six and thirty-seven hundredths feet more or less to a point on the southeasterly right-of-
way of State Highway Rt. 11 extension, Back Road;
THENCE along the said southeasterly right-of-way of State Highway Rt. 11 extension, Back Road, North sixty-four
degrees twenty-five minutes East (N. 64° 25' E) one hundred feet to the place of BEGINNING.
BEING the northerly half of Lot Number 3, Troback Development Number 1.
EXCEPTING AND RESERVING unto the appropriate person or other entity, the portion of the demised premises to
which a declaration of taking by eminent domain was filed by the Borough of Exeter. The said declaration of taking
is filed to No. 4123 of 1978 in the Office of the Prothonotary or the Court of Common Pleas of Luzerne County.
11
Exhibit B - Final Form of Mortgage
Confidential
MORTGAGE
THIS MORTGAGE (hereinafter referred to as “Mortgage”) is dated this
day of
, 2014 and effective as of the ____ day of ____________, 2014 (the “Effective
Date”) between KEYSTONE AUTOMOTIVE OPERATIONS, INC., a Pennsylvania corporation
(hereinafter referred to as “Mortgagor”), and SPHERE CAPITAL, LLC - SERIES A, a Delaware
limited liability company (hereinafter referred to as “Mortgagee”).
W I T N E S E T H:
WHEREAS, pursuant to the provisions of a Non-Negotiable Secured Promissory Note
dated the Effective Date executed by LKQ Corporation, a Delaware corporation (the “Maker”), the
parent company of Mortgagor, in favor of Mortgagee (the “Note”), Maker agreed to pay to Mortgagee the
principal sum of THIRTY ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($31,500,000.00), lawful money of the United States of America, with interest thereon at the rate and
times and in the manner and according to the terms and conditions specified in the Note, which is
incorporated herein by reference; and
WHEREAS, Mortgagor has been directed by Maker to execute and deliver this
Mortgage to Mortgagee for the purpose of providing security to Mortgagee with respect to the
undertakings of Maker pursuant to the Note.
NOW THEREFORE, in consideration of the indebtedness, and as security for payment
to Mortgagee of the principal with interest, and all other sums provided for in the Note, and in this
Mortgage, and as further security for the full and faithful performance by Maker of its obligations under
the Note, according to the terms and conditions thereof, and for performance of the agreements,
conditions, covenants, provisions and stipulations contained herein and therein, Mortgagor has granted,
conveyed, bargained, sold, aliened, enfeoffed, released, confirmed, assigned to, granted a security interest
in and mortgaged, and by these presents does hereby grant, convey, bargain, sell, alien, enfeoff, release,
confirm, assign to, grant a security interest in and mortgage unto Mortgagee:
(1)
all that certain real estate situate in the Borough of Exeter, County of Luzerne,
Commonwealth of Pennsylvania, and more particularly described in Exhibit “A” attached hereto and
made a part hereof (the “Land”);
(2)
all buildings and other improvements erected or hereafter erected on the Land
(the “Improvements” and together with the Land, the “Real Estate”);
(3)
all fixtures, appliances, machinery, fittings, apparatus, furniture and equipment of
any nature whatsoever, and other articles of Mortgagor’s personal property now or at any time hereafter
installed in, attached to or situated in or upon the Land or the Improvements, or used or intended to be
used in connection with the Land, or in the operation of the Improvements, or in the operation or
maintenance of the Improvements (but not including the inventory of Mortgagor situated on the Real
Estate);
1
(4)
any and all tenements, hereditaments and appurtenances belonging to the Land or
any part thereof hereby mortgaged or intended so to be, or in any way appertaining thereto, and all streets,
alleys, passages, ways, water courses, and all easements and covenants now existing or hereafter created
for the benefit of Mortgagor or any subsequent owner or tenant of the Real Estate over ground adjoining
the Real Estate and all rights to enforce the maintenance thereof, and all other rights, liberties and
privileges of whatsoever kind or character, and the reversions and remainders, income, rents, issue and
profits arising therefrom, and all the estate, right, title, interest, property, possession, claim and demand
whatsoever, at law, of Mortgagor in and to the Real Estate or any part thereof;
(5)
all proceeds of the conversion, voluntary or involuntary, of any of the foregoing
into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation
awards; and
(6)
all leases, licenses, occupancy agreements or agreements to lease all or any part
of the Real Estate and all extensions, renewals, amendments, and modifications thereof, and any options,
rights of first refusal, or guarantees relating thereto (collectively, “Leases”); and all rents, income,
receipts, revenues, security deposits, escrow accounts, reserves, issues, profits, awards, and payments of
any kind payable under the Leases or otherwise arising from the Real Estate (collectively, the “Income”).
All of the above-mentioned Land, Improvements, fixtures, machinery, furniture,
equipment, tenements, hereditaments and appurtenances, and other property interests are sometimes
collectively referred to herein as the “Mortgaged Property”.
TO HAVE AND TO HOLD the Mortgaged Property hereby conveyed or mentioned and
intended so to be, unto Mortgagee, its successors and assigns to its own use forever.
PROVIDED ALWAYS, and this instrument is upon the express condition that, if Maker
pays to Mortgagee the principal sum mentioned in the Note, the interest thereon and all other sums
payable by Mortgagor to Mortgagee as are secured hereby, in accordance with the provisions of the Note
and this Mortgage, then this Mortgage and the estate hereby granted shall cease and become void.
Subject to Section 26 of this Mortgage, Mortgagor hereby irrevocably, absolutely and
unconditionally guarantees and becomes surety for the prompt payment by Maker, as and when due and
payable, whether by acceleration or otherwise of all amounts now or hereafter owing by Maker in respect
of the Note, whether for principal, interest, fees, expenses or otherwise, and the due performance and
observance by Maker of its other obligations now or hereafter existing in respect of any of the Note and
any renewals, extensions and modifications thereof. The liability of Mortgagor hereunder shall be
absolute and unconditional, irrespective of: (i) any lack of validity or enforceability of the Note; (ii) any
change in the time, manner or place of payment of, or in any other term in respect of, the Note, or any
other amendment or waiver of or consent to any departure from the terms of the Note; (iii) any other
circumstance which might otherwise constitute a defense available to, or a discharge of, Maker or
Mortgagor
2
in respect hereof; or (iv) the absence of any action on the part of Mortgagee to obtain
payment of the Note from Maker or from Mortgagor or from any other guarantor or obligor.
The Mortgaged Property shall secure the following obligations (“Obligations”) of Maker
or Mortgagor to Mortgagee:
(a)
all amounts at any time owing or payable under the Note as guaranteed by
Mortgagor in this Mortgage;
(b)
all covenants, agreements and obligations of Mortgagor under this Mortgage; and
(c)
all future advances made by Mortgagee for taxes, levies, insurance, and repairs to
or maintenance of the Mortgaged Property.
MORTGAGOR REPRESENTS, COVENANTS AND WARRANTS to and with Mortgagee
that until the indebtedness secured hereby is fully repaid:
1.
Title. Mortgagor hereby represents and warrants that [except as set forth in
Schedule 1] it has good and marketable title in fee simple (subject to the Permitted Liens, as that term is
defined in the Merger Agreement (as that term is defined in the Note)) to the Real Estate.
2.
Maintenance of Mortgaged Property. Mortgagor shall keep and maintain or
cause to be kept and maintained the Improvements in good order and condition and will promptly make
or cause to be made, as and when necessary for such purpose, all repairs, renewals and replacements,
structural and nonstructural, exterior and interior, ordinary and extraordinary, foreseen and unforeseen.
Mortgagor shall abstain from and shall not permit the commission of waste in or about the Mortgaged
Property.
3.
Insurance. Mortgagor shall keep the Mortgaged Property continuously insured
against loss or damage by fire or other casualty in an amount not less than the full replacement cost
(evidenced by a “Replacement Cost Endorsement”) of the Mortgaged Property. The insurance coverage
required under this Section shall be insured under policies: (a) in form reasonably satisfactory to
Mortgagee; (b) endorsed with a standard mortgagee clause in favor of Mortgagee providing not less than
thirty days’ notice to Mortgagee of any cancellation or change in coverage; and (c) endorsed to name
Mortgagee as loss payee. If the insurance, or any part thereof, shall expire, or be withdrawn or not
renewed, or become void or unsafe by Mortgagor’s breach of any condition thereof, or become void or
unsafe by reason of the failure or impairment of the capital of any company in which the insurance may
then be carried, Mortgagor shall place new insurance on the Mortgaged Property. In the event that
Mortgagor fails or refuses to place such new insurance on the Mortgaged Property on or before the
expiration or withdrawal or nonrenewal of the existing coverage, then Mortgagee may obtain such
insurance as Mortgagee deems necessary to satisfy the terms and conditions of this Mortgage. In such
event, the cost of such insurance plus a reasonable amount to reimburse Mortgagee for its administrative
expenses in obtaining such insurance shall be immediately paid to Mortgagee by Mortgagor. In the event
that such costs and expenses are not immediately paid to Mortgagee by Mortgagor, then the amount of
such costs and expenses shall be added to the outstanding principal balance of the Note,
3
shall accrue interest thereon and shall be secured by this Mortgage. Evidence of all renewal policies, with
premiums paid, shall be delivered to Mortgagee prior to the expiration of the old policies. In the event of
loss greater than $50,000 Mortgagor will give immediate notice thereof to Mortgagee, and Mortgagee
may make proof of loss if not timely made by Mortgagor.
4.
Taxes and Other Charges. Mortgagor shall pay when due and payable and
before interest or penalties are due thereon, without any deduction, defalcation or abatement, all taxes,
assessments, water and sewer rents and all other charges or claims which may be assessed, levied, or filed
at any time against Mortgagor, the Mortgaged Property or any part thereof or against the interest of
Mortgagee therein, or which by any present or future law may have priority over the indebtedness secured
hereby either in lien or in distribution out of the proceeds of any judicial sale; and Mortgagor shall
produce to Mortgagee upon request receipts for the payment thereof. If no Event of Default (as
hereinafter defined) is then continuing and Mortgagor in good faith and by appropriate legal action shall
contest the validity or amount of any such taxes, assessments, water and sewer rents or other charges and
shall have established a reserve for the payment thereof in such form and amount as Mortgagee may
reasonably require (including any interest and penalties which may be payable in connection therewith),
then Mortgagor shall not be required to pay such taxes, assessments, water and sewer rents or other
charges or to produce the receipts while the reserve is maintained and so long as the contest operates to
prevent collection, is maintained and prosecuted with diligence, and shall not have been terminated or
discontinued adversely to Mortgagor.
5.
Future Taxes. If hereafter any law or ordinance shall be adopted imposing a tax
directly or indirectly on Mortgagee with respect to the Mortgaged Property, the value of Mortgagor’s
equity therein, or the indebtedness evidenced by the Note and secured by this Mortgage, then Mortgagor
agrees to pay the tax whenever it becomes due and payable thereafter, which agreement shall then
constitute a part of this Mortgage.
6.
Compliance with Laws and Regulations. Mortgagor, at its sole cost and
expense, shall promptly comply with all requirements of all laws, ordinances, regulations and orders of all
Federal, state, municipal and other governmental authorities relating to the Mortgaged Property (“Legal
Requirements”), construction thereon and the use and occupancy thereof, including but not limited to all
laws and regulations relating to environmental matters.
7.
Further Assurances. Mortgagor will, from time to time, make, do execute and
acknowledge, as the situation may require from time to time, such further acts, deeds, conveyances,
mortgages, security agreements, financing statements, continuation statements and other assurances in
law as may be required for the purpose of effectuating the intent hereof and for better assuring and
confirming to Mortgagee, its successors and assigns, the lien and security interest created by this
Mortgage.
8.
Declaration of No Set-Off. Within twenty (20) days after being requested to do
so by Mortgagee, Mortgagor shall certify to Mortgagee or to any proposed assignee of this Mortgage, in a
writing duly acknowledged, the amount of principal, interest and other charges then owing on the
Obligations secured by this Mortgage and by prior liens, if any, and whether there are any setoffs or
defenses against them.
4
9.
Additional Covenants. Mortgagor covenants and agrees that until the
Obligations secured hereunder have been paid in full, Mortgagor shall:
[subject to the matters described on Schedule 1,] maintain at all times
good and marketable title to all Mortgaged Property, and defend such title against the claims and demands
of all persons;
(a)
provided to the Mortgaged Property promptly as and when due;
(b)
pay all charges for water, sewer, gas, electric and other utility services
(c)
permit, and cause any lessee or occupant of the Mortgaged Property to
permit, Mortgagee and its agents and representatives, to enter upon the Mortgaged Property at any
reasonable time, and upon prior reasonable notice to Mortgagor under the circumstances, to appraise and
photograph the Mortgaged Property and to inspect for compliance with Legal Requirements (excluding
subsurface or other invasive investigations), insurance requirements, and the Obligations of Mortgagor
under this Mortgage;
(d)
not commit or suffer waste with respect to the Mortgaged Property;
without the prior written consent of Mortgagee;
(e)
not remove or demolish any material portion of the Mortgaged Property
(f)
not make, install or permit to be made or installed, any additions or
improvements to the Mortgaged Property except in a good and workmanlike manner, free of mechanic’s
or materialmen’s liens, in compliance with Legal Requirements; and
(g)
pay, upon demand, all amounts incurred by Mortgagee in connection
with any action or proceeding taken or commenced by Mortgagee to enforce or collect this Mortgage or
protect, insure or realize upon the Mortgaged Property, including reasonable attorney’s fees and expenses.
10.
occurrence of any of the following:
Required Notices. Mortgagor shall notify Mortgagee promptly of the
excess of $50,000,
(a)
a fire or other casualty causing damage to the Mortgaged Property in
the Mortgaged Property, or any part thereof,
(b)
receipt of written notice of condemnation or threatened condemnation of
material violation of any Legal Requirements;
(c)
receipt of written notice from any governmental authority relating to any
(d)
commencement of any litigation affecting the Mortgaged Property; or
Mortgagor is or may be responsible under any Legal Requirements.
(e)
discovery, discharge or release of any hazardous materials for which
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11.
Condemnation; Casualty.
(a)
Condemnation.
(i)
In the event of any condemnation or taking of any part of the
Mortgaged Property by eminent domain, alteration of the grade of any street, or other injury to or
decrease in the value of the Mortgaged Property by any public or quasi-public authority or corporation, all
proceeds (that is, the award or agreed compensation for the damages sustained) allocable to Mortgagor
shall be applicable first to payment of the indebtedness secured hereby, subject to the terms of the Note.
No settlement for the damages sustained shall be made by Mortgagor without Mortgagee’s prior written
approval. Receipt by Mortgagee of any proceeds less than the full amount of the then outstanding debt
secured hereby shall not alter or modify Maker’s obligation to continue to pay the installments of
principal, interest and other charges specified in the Note. All the proceeds shall be applied in the order
and in the amounts that Mortgagee, in Mortgagee’s sole discretion, may elect, to the payment of principal,
interest or any sums secured by this Mortgage, in each case, subject to the terms of the Note, or toward
payment to Mortgagor, on such reasonable terms as Mortgagee may specify, to be used for the sole
purpose of altering, restoring or rebuilding any part of the Mortgaged Property which may have been
altered, damaged or destroyed as a result of the taking, alteration of grade or other injury to the
Mortgaged Property. Receipt of such proceeds by Mortgagee shall not be subject to a prepayment penalty
hereunder or under the Note.
Mortgaged Property shall have been sold by foreclosure of this Mortgage, Mortgagee shall have the right
to receive the proceeds, to the extent of:
(ii)
If prior to the receipt of the proceeds by Mortgagee the
(A)
any deficiency found to be due to Mortgagee in
connection with the foreclosure sale, with legal interest thereon, and
(B)
reasonable counsel fees, costs and disbursements
incurred by Mortgagee in connection with collection of the proceeds and
the proceedings to establish the deficiency.
(iii)
If the amount of the initial award of damages for the
condemnation is insufficient to pay in full the indebtedness secured hereby with interest and other
appropriate charges, Mortgagee shall have the right to prosecute to final determination or settlement an
appeal or other appropriate proceedings in the name of Mortgagee or Mortgagor, for which Mortgagee is
hereby appointed irrevocably as attorney-in fact for Mortgagor (without requiring Mortgagee to act as
such), which appointment, being for security, is irrevocable. In that event, the expenses of the
proceedings, including reasonable counsel fees and expenses, shall be paid first out of the proceeds and
only the excess, if any, paid to Mortgagee shall be credited against the amounts due under this Mortgage.
Mortgagee, at law, including the right to intervene as a party to any condemnation proceeding.
(iv)
Nothing herein shall limit the rights otherwise available to
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(b)
Casualty. If the Mortgaged Property is damaged by fire or other casualty,
Mortgagor shall promptly repair and restore the same to its condition prior to the damage. In the event of
any fire or other casualty damaging any part of the Mortgaged Property, all insurance proceeds shall,
subject to the terms of the Note, be applicable first to payment of the indebtedness secured hereby. No
settlement for the damages sustained shall be made by Mortgagor without Mortgagee’s prior written
approval. Receipt by Mortgagee of any insurance proceeds less than the full amount of the then
outstanding debt secured hereby shall not alter or modify Maker’s obligation to continue to pay the
installments of principal, interest and other charges specified in the Note. All the insurance proceeds shall
be applied in the order and in the amounts that Mortgagee, in Mortgagee’s sole discretion, may elect, to
the payment of principal (whether or not then due and payable), interest or any sums secured by this
Mortgage, or toward payment to Mortgagor, on such reasonable terms as Mortgagee may specify, to be
used for the sole purpose of altering, restoring or rebuilding any part of the Mortgaged Property which
may have been damaged or destroyed as a result of the fire or other casualty to the Mortgaged Property.
Receipt of such proceeds by Mortgagee shall not be subject to a prepayment penalty hereunder or under
the Note. Notwithstanding anything to the contrary contained herein, so long as no Event of Default shall
exist under this Mortgage, the insurance proceeds shall be delivered by Mortgagee to Mortgagor on such
reasonable terms as Mortgagee may specify for the sole purpose of restoring or rebuilding any part of the
Mortgaged Property which may have been damaged or destroyed as a result of the event of fire or other
casualty.
12.
No Transfer. For the purpose of protecting Mortgagee’s security, Mortgagor
agrees that (a) any sale or other transfer of title to the Mortgaged Property, or (b) any transfer of any
stock, partnership, company or other ownership interests in Mortgagor (other than to an Affiliate (as that
term is defined in the Merger Agreement) of Maker), in either case, without Mortgagee’s prior written
consent, shall result in immediate acceleration of the Obligations.
13. Mortgagee’s Rights. In the event that Mortgagor should fail to pay real estate or
other taxes, assessments, water and sewer rents, charges and claims, insurance premiums, or fail to make
necessary repairs, or permit waste, Mortgagee, at its election, shall have the right to make any payment or
expenditure and to take any action which Mortgagor should have made or taken, or which Mortgagee
deems advisable to protect the security of this Mortgage or the Mortgaged Property, including, without
limitation, any rights granted to Mortgagee under the Note, without prejudice to any of Mortgagee’s rights
or remedies available hereunder or otherwise, at law. In addition, Mortgagor hereby authorizes
Mortgagee, and Mortgagee shall have the continuing right (but not the obligation), at its sole option and
discretion, to:
(a)
do anything which Mortgagor is required but fails to do hereunder, and in
particular Mortgagee may, if Mortgagor fails to do so within ten (10) business days after receipt by
Mortgagor of written notice from Mortgagee, (i) insure or take any reasonable steps to protect the
Mortgaged Property, (ii) pay all taxes, levies, expenses and costs arising with respect to the Mortgaged
Property, or (iii) pay any premiums payable on any policy of insurance required to be obtained or
maintained hereunder, and add any amounts paid under this Section 13(a) to the principal amount of the
indebtedness secured by this Mortgage; and
7
(b)
pay any amounts Mortgagee elects to pay or advance hereunder
following the occurrence of an Event of Default on account of insurance, taxes or other costs, fees or
charges arising in connection with the Mortgaged Property, either directly to the payee of such cost, fee or
charge, directly to Mortgagor, or to such payee(s) and Mortgagor jointly.
All such sums, as well as costs, advanced by Mortgagee pursuant to this Mortgage shall be due
immediately from Mortgagor to Mortgagee, shall be secured hereby, and shall bear interest at a rate which
shall be two and one-half percent (2.5 %) higher than the then highest effective rate specified in the Note
(the “Default Rate”) from the date of payment by Mortgagee until the date of repayment.
14.
Events of Default. Each of the following shall constitute an “Event of Default”
hereunder:
Note;
(a)
The occurrence of an Event of Default, as that term is defined in the
(b)
Failure to comply with any term, obligation, covenant or condition
contained in this Mortgage. If such failure is curable and if Mortgagor has not been given notice of a
breach of the same provision of this Mortgage within the preceding twelve (12) months, it may be cured
(and no Event of Default will have occurred) if Mortgagor, after Mortgagee sends written notice
demanding cure of such failure; (i) cures the failure within fifteen (15) days; or (ii) if the cure requires
more than fifteen (15) days, immediately initiates steps sufficient to cure the failure and thereafter
continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical;
Mortgagor under this Mortgage is false or misleading in any material respect as of the date hereof; or
(c)
Any warranty, representation or statement made to Mortgagee by
(d)
Commencement of foreclosure or forfeiture proceedings, whether by
judicial proceeding, self-help, repossession or any other method, by any creditor of Mortgagor or by any
governmental agency against any of the Mortgaged Property; provided, however, that this subsection (d)
shall not apply in the event of a good faith dispute by Mortgagor as to the validity or reasonableness of
the claim which is the basis of the foreclosure or forfeiture proceeding, provided that Mortgagor gives
Mortgagee written notice of such claim and furnishes reserves or a surety bond for the claim satisfactory
to Mortgagee.
15.
Rights and Remedies On Default. Upon the occurrence of any Event of
Default under this Mortgage and at any time thereafter prior to the cure of such Event of Default,
Mortgagee, at its option, may exercise any one or more of the following rights and remedies, in addition
to any other rights or remedies provided by law:
(a)
Subject to applicable law, Mortgagee shall have the right at is option
without notice to Mortgagor to declare the Obligations immediately due and payable. Mortgagee shall
have the right to obtain judgment for the Obligations (including all amounts advanced or to be advanced
by Mortgagee under Section 13 above, all costs and expenses of collection and suit, including any
bankruptcy or insolvency proceeding affecting Mortgagor, and
8
reasonable attorneys’ fees incurred in connection with any of the foregoing) together with interest on such
judgment at the Default Rate until payment in full is received by Mortgagee and Mortgagee shall have the
right to obtain execution upon the Mortgaged Property on account of such judgment;
(b)
Mortgagee shall have the right to have a receiver appointed to take
possession of all or any part of the Mortgaged Property, with the power to protect and preserve the
Mortgaged Property, to operate the Mortgaged Property preceding foreclosure or sale, and to collect rents,
if any, from the Mortgaged Property and apply the proceeds, over and above the cost of the receivership,
against the Obligations. The receiver may serve without bond if permitted by law. Mortgagee’s right to
the appointment of a receiver shall exist whether or not the apparent value of the Mortgaged Property
exceeds the Obligations by a substantial amount. Employment by Mortgagee shall not disqualify a
person from serving as a receiver;
in all or any part of the Mortgaged Property;
(c)
Mortgagee may obtain a judicial decree foreclosing Mortgagor’s interest
(d)
Mortgagee may obtain a judgment for any deficiency remaining in the
Obligations due to Mortgagee after application of all amounts received from the exercise of the rights
provided in this section;
(e)
If Mortgagor remains in possession of the Mortgaged Property after the
Mortgaged Property is sold as provided above or Mortgagee otherwise becomes entitled to possession of
the Mortgaged Property upon default of Mortgagor, Mortgagor shall become a tenant at sufferance of
Mortgagee or the purchaser of the Mortgaged Property and shall, at Mortgagee’s option, either (i) pay a
reasonable rental for the use of the Mortgaged Property, or (ii) vacate the Mortgaged Property
immediately upon the demand of Mortgagee;
(f)
Mortgagee shall have the right to take possession of any portion of the
Mortgaged Property constituting fixtures or other personal property and any records pertaining thereto. In
addition, upon ten (10) calendar days’ prior written notice to Mortgagor (which Mortgagor hereby
acknowledges to be sufficient and commercially reasonable) Mortgagee shall have the right to sell, lease
or otherwise dispose of all or any of such Mortgaged Property at any time and from time to time at public
or private sale, with or without advertisement thereof, with the right of Mortgagee or its nominee to
become purchaser at any sale (unless prohibited by statute) free from any equity of redemption and from
all other claims, and after deducting all legal and other expenses for maintaining or selling such
Mortgaged Property, and all attorneys’ fees, legal or other expenses for collection, sale and delivery, apply
the remaining proceeds of any sale to pay (or hold as a reserve against) the Obligations and exercise all
other rights and remedies of a secured party under the Uniform Commercial Code or any other applicable
law; and
(g)
Mortgage or available at law.
Mortgagee shall have all other rights and remedies provided in this
16.
Rights and Remedies Cumulative.
9
(a)
The rights and remedies of Mortgagee as provided in this Mortgage and
the Note shall be cumulative and concurrent; may be pursued separately, successively or together against
Mortgagor, Maker or against the Mortgaged Property, or both, at the sole discretion of Mortgagee, and
may be exercised as often as occasion therefor shall arise. The failure to exercise any such right or
remedy shall in no event be construed as a waiver or release thereof.
(b)
Any failure by Mortgagee to insist upon strict performance by Mortgagor
of any of the terms and provisions of this Mortgage shall not be deemed to be a waiver of any of the terms
or provisions of this Mortgage and Mortgagee shall have the right thereafter to insist upon strict
performance by Mortgagor of any and all of them.
(c)
Neither Mortgagor nor any other person now or hereafter obligated for
payment of all or any part of the sums now or hereafter secured by this Mortgage shall be relieved of such
obligation by reason of the failure of Mortgagee to comply with any request of Mortgagor or of any other
person so obligated to take action to foreclose on this Mortgage or otherwise enforce any provisions of
this Mortgage, or by reason of the release, regardless of consideration, of all or any part of the security
held for the indebtedness secured by this Mortgage, or by reason of any agreement or stipulation between
any subsequent owner of the Mortgaged Property and Mortgagee extending the time of payment or
modifying the terms of this Mortgage without first having obtained the consent of Mortgagor or such
other person; and in the latter event Mortgagor and all such other persons shall continue to be liable to
make payments according to the terms of any such extension or modification agreement, unless expressly
released and discharged in writing by Mortgagee.
(d)
Mortgagee may release, regardless of consideration, any part of the
security held for the indebtedness secured by this Mortgage without, as to the remainder of the security, in
any way impairing or affecting the lien of this Mortgage or its priority over any subordinate lien.
17.
Assignment of Leases. This Mortgage is also an absolute and unconditional
assignment to Mortgagee of all Leases and Income, whether now in existence or hereafter arising, for the
purpose of vesting in Mortgagee a first priority, perfected security interest in the Leases and the Income.
Mortgagor hereby assigns, transfers and sets over to Mortgagee all Leases, all Income and all rights of
Mortgagor to enforce the Leases and collect the Income. This assignment includes any award received or
receivable by Mortgagor in any legal proceeding involving any tenant under a Lease whether under the
Bankruptcy Code or otherwise. Mortgagor shall notify any person which Mortgagee may from time to
time specify that the Income should be paid directly to Mortgagee and that any modification of the Leases
must be approved by Mortgagee. So long as no Event of Default is then continuing, Mortgagor shall have
a license, revocable at the will of Mortgagee, to enforce the Leases and collect the Income. Mortgagor
hereby authorizes and directs that all other parties now or hereafter owing or paying Income under any
Lease or now or hereafter having in their possession or control any Income from or allocated to the
Mortgaged Property, or any part thereof, shall, upon the request of Mortgagee and until Mortgagee directs
otherwise, pay and deliver such Income directly to Mortgagee at Mortgagee’s address set forth below, or
in such other manner as Mortgagee may direct such parties in writing and this authorization shall continue
until this Mortgage is released
10
of record. No payor making payments to Mortgagee at its request under the assignment contained in this
Mortgage shall have any responsibility to see to the application of any of such funds, and any party
paying or delivering Income to Mortgagee under such assignment shall be released thereby from any and
all liability to Mortgagor to the full extent and amount of all such Income so delivered. Notwithstanding
any legal presumption to the contrary, Mortgagee shall not be obligated by reason of its acceptance of this
assignment to perform any obligation of Mortgagor as lessor under any Lease. Neither the acceptance of
this assignment nor the collection of Income under the Leases shall constitute a waiver of any rights of
Mortgagee hereunder or under the Note or constitute a cure of any default by Mortgagor hereunder or
thereunder.
18. Mortgagor’s Waivers. Mortgagor hereby waives and releases all benefit that
might accrue to Mortgagor by virtue of any present or future law exempting the Mortgaged Property, or
any part of the proceeds arising from any sale thereof, from attachment, levy or sale on execution, or
providing for any stay of execution, exemption from civil process or extension of time for payment.
19.
Communications. All notices and other communications provided for in this
Mortgage shall be in writing and shall be given in the manner and become effective as set forth in the
Note, and addressed to the respective parties at their addresses specified below or as to either party hereto
at such other address as shall be designated by such party in a written notice to the other party hereto.
If to Mortgagor, to:
Keystone Automotive Operations, Inc.
c/o LKQ Corporation
500 West Madison Street, Suite 2800
Chicago, Illinois 60661
Attention: General Counsel
Facsimile: (312) 207-1529
If to Mortgagee, to:
Sphere Capital, LLC - Series A
360 North Crescent Drive, South Building
Beverly Hills, CA 90210
Attention: General Counsel
Facsimile: (310) 712-1863
20.
Covenant Running with the Land. Any act or agreement to be done or
performed by Mortgagor shall be construed as a covenant running with the land and shall be binding upon
Mortgagor and its successors and assigns as if they had personally made such agreement.
21.
Amendment. This Mortgage cannot be changed or amended except by
agreement in writing signed by the party against whom enforcement of the change is sought.
11
22.
Applicable Law. This Mortgage shall be governed by and construed according
to the laws of the Commonwealth of Pennsylvania, without regard to conflicts of law analysis or choice of
law provisions.
23.
Construction. Whenever used in this Mortgage, unless the context clearly
indicates a contrary intent:
(a)
The use of any gender shall include all genders;
(b)
The singular number shall include the plural and the plural the singular
as the context may require; and
(c)
ascribed thereto in the Note.
Initially capitalized terms not defined herein shall have the meanings
24.
Non-Usury and Severability Provisions. Notwithstanding anything in this
Mortgage or the Note to the contrary, neither this Mortgage nor the Note shall be deemed to impose on
Mortgagor or Maker, as the case may be, any obligation of payment, except to the extent that the same
may be legally enforceable, and any provision to the contrary shall be of no force or effect. If any term or
provision of this Mortgage or the application thereof to any person, property or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Mortgage, or the application of such term or
provision to persons, properties and circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term and provision of this Mortgage shall be valid
and enforceable to the fullest extent permitted by law.
25.
Captions. The captions preceding the text of the paragraphs or subparagraphs of
this Mortgage are inserted only for convenience of reference and shall not constitute a part of this
Mortgage, nor shall they in any way affect its meaning, construction or effect.
26.
Non-Recourse. Mortgagee acknowledges and agrees that Mortgagor shall have
no personal liability hereunder and that Mortgagee’s remedies against Mortgagor shall be limited to
enforcement of this Mortgage against the Mortgaged Property. In no case shall Mortgagor have any claim
against any other assets of Mortgagor.
12
IN WITNESS WHEREOF, Mortgagor has duly executed this Mortgage the day and
year first above written.
KEYSTONE AUTOMOTIVE
OPERATIONS, INC., a Pennsylvania
corporation
By:_______________________________
Name:
Its:
ACKNOWLEDGMENT
STATE OF
COUNTY OF
)
) SS:
)
On the _______ day of ____________, 2014, before me, a Notary Public in and for the
State and County aforesaid, personally appeared _________________________, who acknowledged her/
himself to be the ______________________________________ of KEYSTONE AUTOMOTIVE
OPERATIONS, INC., a Pennsylvania corporation, and that she/he as such officer, being authorized to do
so, executed the foregoing instrument for the purposes therein contained by signing the name of the
corporation by her/himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
Notary Public
MY COMMISSION EXPIRES:
I hereby certify that the address
of Mortgagee is:
360 North Crescent Drive, South Building
Beverly Hills, CA 90210
__________________________________
On behalf of Mortgagee
13
Exhibit A
Legal Description
PROPERTY 1:
Parcel 1: (DBK 2647, Pg 1196)
ALL THAT CERTAIN piece or parcel of land situated in the Borough of Exeter, County of Luzerne and
Commonwealth of Pennsylvania bounded and described as follows, to wit:
BEGINNING at a concrete monument in the southerly sideline of Pennsylvania State Highway, Legislative Route
No. 11 (Extension), also known as Back Road, said point monument also being in the dividing line between lands
now or formerly of Joseph and Anita DePascale as recorded in Luzerne County Deed Book 1680, Page 515 and the
lands herein described;
THENCE from said concrete monument and along said dividing line, and along lands now or formerly of Joseph
Mirra, et. ux., South 34 degrees 13 minutes East, two hundred thirty-seven and thirty one hundredths (237.30) feet to
a point in the northwesterly right-of-way line of the Lehigh Valley Railroad Company (West Pittston Branch);
THENCE from said point and along said right-of-way line, South 43 degrees 36 minutes West, one thousand one
hundred twenty-one and twenty-five one-hundredths (1,121.25) feet to a point in the northeasterly sideline of
Stevens Lane;
THENCE from said point and along said Stevens Lane sideline, North 29 degrees 28 minutes West, one hundred
fifty-six and fifty-five one-hundredths (156.55) feet to a point on the southerly bank of Hick's (Carpenter's) Creek;
THENCE from said point and along the southerly bank of said Creek, along the end of Stevens Lane, along lands
now or formerly State Automotive Corporation as recorded in Luzerne County Deed Book 1865 at Page 401, and
along lands now or formerly of the Greater Pittston Chamber of Commerce as recorded in Luzerne County Deed
Book 1908 at Page 622, by the two (2) following described lines: (1) North 79 degrees 00 minutes West, three
hundred twenty-two and eighty-six one-hundredths (322.86) feet to a point; (2) South 81 degrees 55 minutes West,
three hundred seventy-two and eighty-six one-hundredths (372.86) feet to a point in line of lands now or formerly of
The First Ward Social Club of Exeter as recorded in Luzerne County-Deed Book 1529, at Page 458;
THENCE from said point and along said lands, North 12 degrees 01 minute West, four hundred eighty-seven
(487.00) feet to a point in the aforesaid sideline of the Back Road;
THENCE from said point and along said sideline by the two (2) following described lines: (1) North 74 degrees 03
minutes East, ninety-seven and seventy-eight one-hundredths (97.78) feet to a point; (2) North 75 degrees 42
minutes East, one thousand four hundred fifty-five and twenty-eight one-hundredths (1,455.28) feet to a point, the
place of BEGINNING.
CONTAINING 20.087 acres, be the same more or less.
PARCEL 2: (DBK 2293, Page 1197)
14
ALL the surface and right of soil of all that certain piece or parcel of land situate in the Borough of Exeter, County
of Luzerne and Commonwealth of Pennsylvania, bounded and described as follows, to wit:
BEGINNING at a point in the southerly right-of-way line of State Highway Route #11, Extension, known as the
"Back Road", and located about one thousand nine hundred eighty (1,980) feet westwardly along said highway from
the center of Exeter Avenue, said point also being the northwesterly corner of Parcel #1 conveyed to the Pittston
Area Industrial Development by Deed dated April 15, 1957; THENCE along the westerly side of said Parcel #1 of
Pittston Area Industrial Development, South 14° 35' East, five hundred thirteen (513) feet, more or less, to a point in
the southerly side of Carpenter's Creek, said point also being the southwesterly corner of Parcel #1 aforesaid;
THENCE westwardly along the said southerly side of Carpenter's Creek also being the northerly line of Parcel #3 of
Deed above-mentioned dated April 15, 1957, ninety (90) feet, more or less, to a point; THENCE North 14° 35' West,
five hundred (500) feet, more or less, to a point in the southerly right-of-way line of State Highway Route #11
Extension aforesaid; THENCE eastwardly along said right-of-way line, ninety (90) feet, more or less, to the place of
BEGINNING.
CONTAINING one acre, more or less.
PARCEL 3:
ALL those certain pieces or parcels of land situate in the Borough of Exeter, County of Luzerne and State of
Pennsylvania, bounded and described as follows, to wit:
PURPART NO. 1: (DBK 2283, Page 930)
BEGINNING at a point in the southeasterly right-of-way line of State Highway Route No. 11 extension, Back Road,
said point being the Northwest corner of a parcel of land conveyed by Troback Development Company to the First
Ward Social Club of Exeter, by Deed dated September 9, 1963, and recorded in Luzerne County Deed Book 1529,
page 458;
THENCE along said lands now or formerly of the First Ward Social Club of Exeter, South fourteen degrees fifteen
minutes East, four hundred eighty-three and ninety-four hundredths (483.94) feet to a point in line of lands now or
formerly of Jewelcor Incorporated;
South seventy-six degrees forty-nine minutes forty-six seconds West, twenty-eight and fifty-six hundredths
THENCE along lands now or formerly of Jewelcor Incorporated the following two (2) courses and distances:
(1)
(28.56) feet to a point;
(2)
tenths (71.44) feet to a point:
South seventy-five degrees forty-seven minutes twenty-four seconds West, seventy one and forty-four
THENCE through other lands of the Grantors herein, North fourteen degrees 15 minutes West (N. 14° 15' W.) four
hundred seventy-two (472) feet more or less to a point on the Southeasterly right-of-way of State Highway Rt. 11
extension, Back Road;
THENCE along the Southeasterly right-of-way of State Highway Rt. 11, Back Road, North sixty-six degrees thirty-
nine minutes forty-three seconds East (N. 66° 39' 43" E.) one hundred (100) feet to the place of BEGINNING
PURPART NO. 2: (DBK 2283, Page 930)
15
BEGINNING at a point in the southeasterly right-of-way line of State Highway Route No. 11 extension, Back Road,
said point being the Northwest corner of a parcel of land conveyed to Elvira Chiavacci, a/k/a Vera Chiavacci and
Jacquelyn E. Troback, by and through H. Deno Chiavacci, Attorney In Fact to James H. Belmont and Carmena T.
Belmont, his wife, by deed dated May 13, 1982, and recorded in Luzerne County Deed Book 2073 at page 1027;
THENCE along said lands now or formerly of James S. Belmont and Carmena T. Belmont, South fourteen degrees
fifteen minutes East, (S. 14° 15' E.) four hundred seventy-two feet more or less to a point in line of lands now or
formerly of Jewelcor, Incorporated;
South seventy-five degrees forty-seven minutes twenty-four seconds West, thirty-three and twenty-six
THENCE along the lands now or formerly of Jewelcor, Incorporated the following three (3) courses and distances:
(1)
hundredths (33.26) feet to a point;
(2)
(52.20) feet to a point;
(3)
South forty degrees twenty minutes thirty-two seconds West, twenty-seven feet plus or minus to a point;
South seventy-five degrees fifteen minutes fifty-seven seconds West, fifty-two and twenty hundredths
THENCE through other lands of the Grantors herein, North fourteen degrees fifteen minutes West (N. 14° 15' W)
four hundred sixty-two feet (462) more or less to a point on the Southeasterly right-of-way of State Highway Rt. 11,
extension, Back Road;
THENCE along the said Southeasterly right-of way of State Highway Rt. 11, Back Road, North sixty-four degrees
twenty-five minutes East (N. 64° 25' E.) fourteen and fifty-eight hundredths (14.58) feet to a point;
THENCE along the said Southeasterly right-of-way of State Highway Rt. 11, Back Road, North sixty-six degrees
thirty-nine minutes forty-three seconds East, eighty-five and forty-two hundredths (85.42) feet to the place of
BEGINNING.
PARCEL 4: (RBK 3005, Page 185663)
ALL THAT CERTAIN piece or parcel of land situate in the Borough of Exeter, County of Luzerne and State of
Pennsylvania, bounded and described as follows, to wit:
BEGINNING at a point in the southeasterly right-of-way line of State Highway Route No. 11 extension, Back Road,
said point being the Northwest corner of a parcel of land conveyed by Elvira Chiavacci, a/k/a Vera Chiavacci and
Jacquelyn E. Troback by and through H. Deno Chiavacci, attorney in fact to James S. Belmont and Carmena T.
Belmont, his wife, by deed dated June 20, 1983 and recorded in the Office of the Recorder of Deeds of Luzerne
County In Deed Book 2105, page 170;
THENCE along said lands now or formerly of James S. Belmont and Carmena T. Belmont, his wife, South fourteen
degrees fifteen minutes East (S. 14° 15' E.) four hundred sixty and ten one-hundredths (460.10) feet more or less to a
point in line of lands now or formerly of Jewelcor Incorporated;
THENCE along the lands now or formerly of Jewelcor Incorporated the following two (2) courses and directions:
South forty degrees twenty minutes thirty-two seconds West, seventy-three and twenty-five hundredths
(1)
(73.25) feet to a point;
(2)
plus or minus to a point;
South fifty-six degrees twenty-two minutes thirty-seven seconds West, forty and sixty-five hundredths feet
16
THENCE through other lands now or formerly of Chiavacci, North fourteen degrees fifteen minutes West (N. 14°
15' W) four hundred ninety-six and thirty-seven hundredths feet more or less to a point on the southeasterly right-of-
way of State Highway Rt. 11 extension, Back Road;
THENCE along the said southeasterly right-of-way of State Highway Rt. 11 extension, Back Road, North sixty-four
degrees twenty-five minutes East (N. 64° 25' E) one hundred feet to the place of BEGINNING.
BEING the northerly half of Lot Number 3, Troback Development Number 1.
EXCEPTING AND RESERVING unto the appropriate person or other entity, the portion of the demised premises to
which a declaration of taking by eminent domain was filed by the Borough of Exeter. The said declaration of taking
is filed to No. 4123 of 1978 in the Office of the Prothonotary or the Court of Common Pleas of Luzerne County.
17
The deeds evidencing the following parcels of the Mortgaged Property reflect a grantee other
than the Mortgagor:
Schedule 1
Property
Name/Use
Exeter
Warehouse
Property Address
100 Slocum Avenue
Exeter, PA 18643
Record Book &
Page Number of
Vesting Deed
Bk 2647 Pg 1196 Keystone Automotive
Grantee (Exactly as
Appears on the Vesting
Deed Provided to Date)
Bk 2283 Pg 930
Warehouse, a partnership
Keystone Automotive
Warehouse
Bk 2293 Pg 1197 Keystone Automotive
Warehouse
18
Prepared by:
[name]
[address]
(___) ____- _____
Return to:
[name]
[address]
(___) ____- _____
Parcel No(s). _________________
MORTGAGE
From
KEYSTONE AUTOMOTIVE OPERATIONS, INC.
Mortgagor
To
SPHERE CAPITAL, LLC - SERIES A
Mortgagee
19
LKQ CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(In thousands, except ratios)
(Unaudited)
2009
Year Ended December 31,
2011
2012
2010
Exhibit 12.1
2013
Income from continuing operations before provision
for income taxes
Fixed charges
Amortization of capitalized interest, net of interest
capitalized
Earnings available for fixed charges
$ 205,317
53,993
$ 270,125
54,769
$ 335,771
56,901
$ 409,167
71,983
$ 475,827
100,190
44
$ 259,354
2
$ 324,896
(318)
$ 392,354
(57)
$ 481,093
56
$ 576,073
Fixed charges:
Interest expense, including amortization of debt
issuance costs
Capitalized interest
Portion of rental expense representative of
interest
Total fixed charges
Ratio of earnings to fixed charges
$ 32,252
—
$ 29,765
35
$ 24,307
479
$ 31,429
296
$ 51,184
130
21,741
$ 53,993
4.8
24,969
$ 54,769
5.9
32,115
$ 56,901
6.9
40,258
$ 71,983
6.7
48,876
$ 100,190
5.7
LIST OF SUBSIDIARIES OF LKQ CORPORATION (as of December 31, 2013)
Exhibit 21.1
Subsidiary
U.S. Entities
Accu-Parts LLC
Akron Airport Properties, Inc.
Jurisdiction
Assumed Names
New York
Ohio
American Recycling International, Inc.
California
Pick A Part Auto Dismantling
A-Reliable Auto Parts & Wreckers, Inc.
Illinois
LKQ Self Service Auto Parts-Rockford; LKQ Heavy
Duty Truck ARSCO; LKQ Heavy Duty Truck Core;
LKQ Pick Your Part Rockford
ATK Motorsports Inc.
Budget Auto Parts U-Pull-It, Inc.
City Auto Parts of Durham, Inc.
Damron Holding Company, LLC
DAP Trucking, LLC
Double R Auto Sales, Inc.
Gearhead Engines Inc.
Goodmark Motors, LLC (49.9% stake)
Greenleaf Auto Recyclers, LLC
KAH Acquisition Sub, Inc.
KAI China LLC
KAIR IL, LLC
Keystone Automotive Industries, Inc.
Kwik Auto Body Supplies, Inc.
Lakefront Capital Holdings, Inc.
LKQ 1st Choice Auto Parts, LLC
LKQ 250 Auto, Inc.
LKQ A&R Auto Parts, Inc.
LKQ All Models Corp.
LKQ Apex Auto Parts, Inc.
LKQ Atlanta, L.P.
LKQ Auto Parts of Central California, Inc.
LKQ Auto Parts of Memphis, Inc.
LKQ Auto Parts of North Texas, Inc.
LKQ Auto Parts of North Texas, L.P.
LKQ Auto Parts of Orlando, LLC
LKQ Auto Parts of Utah, LLC
LKQ Best Automotive Corp.
California
Louisiana
North Carolina LKQ Self Service Auto Parts-Durham
Delaware
Florida
Florida
California
Delaware
Delaware
Delaware
Delaware
Illinois
California
Massachusetts
California
Oklahoma
Ohio
South Carolina
Arizona
Oklahoma
Delaware
California
Arkansas
Delaware
Delaware
Florida
Utah
Delaware
LKQ North Florida; LKQ Melbourne; LKQ Service
Center Crystal River; LKQ Fort Myers
Saturn Wheel Company; Heartland Aluminum;
Profromance Powertrain; LKQ Heavy Duty Truck-
Carolina; Potomac German Mid-Atlantic; Greenleaf
Quality Recycled Auto Parts; LKQ West Florida;
LKQ North Florida
Transwheel, Coast to Coast International; LKQ of
Cleveland; Keystone Automotive-San Francisco Bay
Area; Chrome Enhancements
Wholesale Auto Recyclers; Cars ‘n More; LKQ of
Arizona
LKQ Self Service Auto Parts - Oklahoma City
LKQ Carolina; LKQ Parts Outlet-Atlanta
LKQ Valley Truck Parts; LKQ Specialized Auto
Parts; LKQ ACME Truck Parts; All Engine
Distributing
LKQ of Tennessee; LKQ Preferred
LKQ Auto Parts of Central Texas; LKQ Self Service
Auto Parts-Austin
LKQ Self Service Auto Parts-Orlando; LKQ Pick
Your Part
LKQ Auto Parts of South Texas; A-1 Auto Salvage
Pick & Pull; The Engine & Transmission Store;
LKQ Automotive Core Services; LKQ International
Sales; LKQ of El Paso
LIST OF SUBSIDIARIES OF LKQ CORPORATION (as of 12/31/13)
Subsidiary
LKQ Birmingham, Inc.
Jurisdiction
Alabama
Assumed Names
LKQ Gulf Coast; LKQ Plunks Truck Parts &
Equipment - West Monroe
LKQ Brad’s Auto & Truck Parts, Inc.
Oregon
LKQ Broadway Auto Parts, Inc.
New York
LKQ Buffalo; LKQ Self Service Auto Parts-Buffalo
LKQ Copher Self Service Auto Parts-Bradenton Inc.
Florida
LKQ Copher Self Service Auto Parts-Clearwater Inc. Florida
LKQ Copher Self Service Auto Parts-St. Petersburg
Inc.
LKQ Copher Self Service Auto Parts-Tampa Inc.
LKQ Crystal River, Inc.
LKQ Delaware LLP
LKQ Finance 1 LLC
LKQ Finance 2 LLC
LKQ Foster Auto Parts Salem, Inc.
LKQ Foster Auto Parts Westside LLC
LKQ Foster Auto Parts, Inc.
LKQ Gorham Auto Parts Corp.
LKQ Great Lakes Corp.
LKQ Heavy Truck-Texas Best Diesel, L.P.
LKQ Holding Co.
LKQ Hunts Point Auto Parts Corp.
Florida
Florida
Florida
Delaware
Delaware
Delaware
Oregon
Oregon
Oregon
Maine
Indiana
Texas
Delaware
New York
LKQ Lakenor Auto & Truck Salvage, Inc.
California
LKQ Management Company
LKQ Metro, Inc.
LKQ Mid-America Auto Parts, Inc.
LKQ Midwest Auto Parts Corp.
LKQ Minnesota, Inc.
LKQ of Indiana, Inc.
LKQ of Michigan, Inc.
LKQ of Nevada, Inc.
LKQ of Tennessee, Inc.
LKQ Online Corp.
LKQ Penn-Mar, Inc.
LKQ Plunks Truck Parts & Equipment - Jackson,
Inc.
Delaware
Illinois
Kansas
Nebraska
Minnesota
Indiana
Michigan
Nevada
Tennessee
Delaware
Pennsylvania
Mississippi
LKQ Pick Your Part
LKQ Pick Your Part
LKQ Pick Your Part
LKQ Pick Your Part
LKQ Fort Myers; LKQ Heavy Truck-Tampa; LKQ
Pick Your Part
Foster Auto Parts Salem
LKQ U-Pull-It Auto Wrecking; U-Pull-It Auto
Wrecking; LKQ Barger Auto Parts; LKQ KC Truck
Parts-Inland Empire; LKQ KC Truck Parts-Western
Washington; LKQ KC Truck Parts-Montana; LKQ
Wholesale Truck Parts; LKQ of Eastern Idaho
LKQ Star Auto Parts; LKQ Chicago; LKQ Self
Service Auto Parts-Milwaukee
LKQ Fleet Solutions
Partsland USA; LKQ Auto Parts of Eastern
Pennsylvania; LKQ Auto Parts
LKQ of Southern California; LKQ of Las Vegas;
LKQ Parts Outlet-Los Angeles
Mabry Auto Salvage; LKQ of Oklahoma City; LKQ
of NW Arkansas; LKQ Heavy Duty Truck-Kansas;
LKQ Four States
Midwest Foreign Auto; LKQ Midwest Auto
LKQ Albert Lea
LKQ Self Service Auto Parts-South Bend; LKQ
Kentuckiana
LKQ Thruway Auto Parts; LKQ Venice Auto Parts;
LKQ Triple Nickel Trucks
LIST OF SUBSIDIARIES OF LKQ CORPORATION (as of 12/31/13)
Subsidiary
LKQ Powertrain, Inc.
LKQ Precious Metals, Inc.
Jurisdiction
Delaware
Rhode Island
Assumed Names
LKQ Raleigh Auto Parts Corp.
North Carolina LKQ Pick Your Part
LKQ Receivables Finance Company, LLC
Delaware
LKQ Route 16 Used Auto Parts, Inc.
Massachusetts Diversified Marketing Solutions; LKQ Pick Your
Part; LKQ Car World Auto Parts
LKQ Salisbury, Inc.
North Carolina LKQ of Carolina; LKQ Richmond; LKQ East
LKQ Savannah, Inc.
LKQ Self Service Auto Parts-Holland, Inc.
LKQ Self Service Auto Parts-Kalamazoo, Inc.
LKQ Self Service Auto Parts-Memphis LLC
LKQ Self Service Auto Parts-Tulsa, Inc.
LKQ Smart Parts, Inc.
LKQ Southwick LLC
LKQ Taiwan Holding Company
LKQ Tire & Recycling, Inc.
LKQ Trading Company
LKQ Triplett ASAP, Inc.
LKQ U-Pull-It Auto Damascus, Inc.
LKQ U-Pull-It Tigard, Inc.
LKQ West Michigan Auto Parts, Inc.
Michael Auto Parts, Incorporated
North American ATK Corporation
P.B.E. Specialties, Inc.
Pick-Your-Part Auto Wrecking
Georgia
Michigan
Michigan
Tennessee
Oklahoma
Delaware
Massachusetts
Illinois
Delaware
Delaware
Ohio
Oregon
Oregon
Michigan
Florida
California
Massachusetts
California
Potomac German Auto South, Inc.
Potomac German Auto, Inc.
Pull-N-Save Auto Parts, LLC
Florida
Maryland
Colorado
Redding Auto Center, Inc.
California
Scrap Processors, LLC
Speedway Pull-N-Save Auto Parts, LLC
Supreme Auto Parts, Inc.
U-Pull-It, Inc.
U-Pull-It, North, LLC
Illinois
Florida
Pennsylvania
Illinois
Illinois
Carolina; LKQ Self Service East NC ; LKQ Self
Service Auto Parts-Charlotte; LKQ Pick Your Part;
LKQ Heavy Duty Truck Charlotte
LKQ Self Service Auto Parts-Savannah; LKQ Pick
Your Part
LKQ Pick Your Part
LKQ Self Service Auto Parts-Grand Rapids; LKQ
Pick Your Part
LKQ Pick Your Part
LKQ Pick Your Part
LKQ Viking Auto Salvage
LKQ Heavy Truck-Goody's; LKQ Pittsburgh; LKQ
Pick Your Part
LKQ U-Pull-It Damascus
LKQ Pick A Part-San Bernardino; LKQ Midnight
Auto & Truck Recyclers; LKQ Pick A Part-
Hesperia; LKQ Desert High Truck & Auto
Recyclers; LKQ Pick A Part-Riverside; LKQ
Hillside Truck & Auto Recyclers; LKQ Pick
Your Part Chicago Heights
LKQ Norfolk; LKQ Heavy Truck-Maryland
LKQ Pull-N-Save Auto Parts of Aurora LLC; LKQ
of Colorado; LKQ Self Service Auto Parts-Denver;
LKQ Western Truck Parts
LKQ Auto Parts of Northern California; LKQ Reno;
LKQ Specialized Parts Planet; LKQ ACME Truck
Parts; LKQ Auto Sales of Rancho Cordova
LKQ Self Service Auto Parts of Daytona, LLC
LKQ PickYour Part Blue Island
LKQ Pick Your Part
LIST OF SUBSIDIARIES OF LKQ CORPORATION (as of 12/31/13)
Subsidiary
Jurisdiction
Assumed Names
Foreign Entities
1323352 Alberta ULC
1323410 Alberta ULC
Alberta
Alberta
A.C.N. 165 321 979 Pty Ltd. (49% stake)
Australia
Ageres B.V.
AP Logistics Belgie NV
AP Logistics B.V.
Autoclimate Limited
Automotive Data Services Limited
Bee Bee Refinishing Supplies (Halstead) Limited
Car Parts 4 Less Limited
Netherlands
Belgium
Netherlands
England &
Wales
England &
Wales
England &
Wales
England &
Wales
Distribuidora Hermanos Copher Internacional, SA
Guatemala
Euro Car Parts Holdings Limited
Euro Car Parts Limited
Euro Car Parts Ltd
Euro Car Parts (Northern Ireland) Limited
Euro Garage Solutions Ltd
Harrems Tools B.V.
Harrems Tools N.V.
Hartsant Crash Repair Bvba
Hartsant Crash Repair Parts B.V.
Havan Automotive B.V.
Hermanos Copher Internacional, SA
HF Services B.V.
HF Services Blva
IPAR Industrial Partners B.V.
Iris Coatings Limited
Iris Distribution Limited
England &
Wales
England &
Wales
Ireland
Northern
Ireland
England &
Wales
Netherlands
Belgium
Belgium
Netherlands
Netherlands
Costa Rica
Netherlands
Belgium
Netherlands
England &
Wales
England &
Wales
Assumed Names
LIST OF SUBSIDIARIES OF LKQ CORPORATION (as of 12/31/13)
Subsidiary
JCA Coatings Limited
JP Automotive and Industrial Supplies Limited
Keystone Automotive de Mexico, Sociedad de
Responsabilidad Limitada de Capital Variable
Keystone Automotive Industries CDN, Inc.
Keystone Automotive Industries ON, Inc.
Kuhne Nederland B.V.
LKQ Canada Auto Parts Inc.
LKQ Canada ULC
LKQ Coatings Limited
LKQ Euro Limited
LKQ Netherlands B.V.
LKQ Ontario LP
Jurisdiction
England &
Wales
England &
Wales
Mexico
Ontario
Canada
(Federal)
Netherlands
Canada
(Federal)
Alberta
England &
Wales
United
Kingdom
Netherlands
Ontario
LKQ Trucks and Parts de Mexico S. de R.L de C.V. Mexico
LKQ UK Finance 1 LLP
LKQ UK Finance 2 LLP
Milton Keynes Paint & Equipment Limited
MKS Products Limited
Nipparts B.V.
Nipparts Deutschland GmbH
Nipparts UK Ltd.
Nohau Systems B.V.
Pauwels B.V.
Premier Paints Limited
Quinton Hazell Benelux B.V.
Sator Beheer B.V.
Sator Central Services B.V.
Sator Holding B.V.
Seebeck 31 Limited
Sinemaster Motor Factors Limited
England &
Wales
England &
Wales
England &
Wales
England &
Wales
Netherlands
Germany
England &
Wales
Netherlands
Netherlands
England &
Wales
Netherlands
Netherlands
Netherlands
Netherlands
England &
Wales
England &
Wales
LIST OF SUBSIDIARIES OF LKQ CORPORATION (as of 12/31/13)
Subsidiary
Sonshine Auto Parts Inc.
Van Heck & Co. B.V.
Van Heck Interpieces N.V.
Van Heck Vastgoed B.V.
Vehicle Data Services Limited
Vege de Mexico S.A. de C.V.
Vege-Motodis S.A. de C.V.
Vhip FR SAS
Jurisdiction
Ontario
Netherlands
Belgium
Netherlands
England &
Wales
Mexico
Mexico
France
Assumed Names
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-110149, 333-128151 and
333-174450 on Form S-8, Registration Statement No. 333-182502 on Form S-3, and Registration Statement Nos.
333-193585, 333-133911 and 333-160395 on Form S-4 of our reports dated March 3, 2014, relating to the
consolidated financial statements and financial statement schedule of LKQ Corporation and subsidiaries and the
effectiveness of LKQ Corporation and subsidiaries’ internal control over financial reporting, appearing in this
Annual Report on Form 10-K of LKQ Corporation for the year ended December 31, 2013.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 3, 2014
Exhibit 31.1
I, Robert L. Wagman, certify that:
1. I have reviewed this annual report on Form 10-K of LKQ Corporation;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
March 3, 2014
/s/ ROBERT L. WAGMAN
Robert L. Wagman
President and Chief Executive Officer
Exhibit 31.2
I, John S. Quinn, certify that:
1. I have reviewed this annual report on Form 10-K of LKQ Corporation;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
March 3, 2014
/S/ JOHN S. QUINN
John S. Quinn
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of LKQ Corporation (the “Company”) on Form 10-K for the fiscal year ended
December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned,
as President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 3, 2014
/S/ ROBERT L. WAGMAN
Robert L. Wagman
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of LKQ Corporation (the “Company”) on Form 10-K for the fiscal year ended
December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned,
as Executive Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 3, 2014
/S/ JOHN S. QUINN
John S. Quinn
Executive Vice President and Chief Financial Officer