RigNet
RigNet, Inc. (Form: 10-Q, Received: 11/06/2017 17:21:44)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2017

or

 

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

For the transition period from                      to                     

Commission file number 001-35003

 

 

RigNet, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   76-0677208

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

15115 Park Row Blvd, Suite 300

Houston, Texas

  77084-4947
(Address of principal executive offices)   (Zip Code)

(281) 674-0100

Registrant’s telephone number, including area code

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

At October 31, 2017, there were outstanding 18,225,194 shares of the registrant’s Common Stock.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  
  PART I – FINANCIAL INFORMATION   

Item 1

  Condensed Consolidated Financial Statements (Unaudited)      3  

Item 2

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      22  

Item 3

  Quantitative and Qualitative Disclosures about Market Risk      34  

Item 4

  Controls and Procedures      35  
  PART II – OTHER INFORMATION   

Item 1

  Legal Proceedings      36  

Item 1A

  Risk Factors      36  

Item 2

  Unregistered Sales of Equity Securities and Use of Proceeds      36  

Item 3

  Defaults Upon Senior Securities      36  

Item 4

  Mine Safety Disclosures      36  

Item 5

  Other Information      36  

Item 6

  Exhibits      36  

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     September 30,
2017
    December 31,
2016
 
     (in thousands, except share amounts)  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 32,900     $ 57,152  

Restricted cash

     43       139  

Accounts receivable, net

     49,216       48,672  

Costs and estimated earnings in excess of billings on uncompleted contracts

     1,773       2,382  

Prepaid expenses and other current assets

     6,743       10,379  
  

 

 

   

 

 

 

Total current assets

     90,675       118,724  

Property, plant and equipment, net

     62,895       59,757  

Restricted cash

     1,500       1,514  

Goodwill

     37,122       21,998  

Intangibles, net

     32,341       16,028  

Deferred tax and other assets

     13,315       12,951  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 237,848     $ 230,972  
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

Accounts payable

   $ 12,195     $ 9,057  

Accrued expenses

     15,592       12,835  

Current maturities of long-term debt

     8,545       8,478  

Income taxes payable

     240       877  

Deferred revenue and other current liabilities

     9,340       3,625  
  

 

 

   

 

 

 

Total current liabilities

     45,912       34,872  

Long-term debt

     51,455       52,990  

Deferred revenue

     263       254  

Deferred tax liability

     301       256  

Other liabilities

     27,365       30,022  
  

 

 

   

 

 

 

Total liabilities

     125,296       118,394  
  

 

 

   

 

 

 

Commitments and contingencies (Note 11)

    

Equity:

    

Stockholders’ equity

    

Preferred stock - $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at September 30, 2017 or December 31, 2016

     —         —    

Common stock - $0.001 par value; 191,000,000 shares authorized; 18,225,194 and 17,932,598 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

     18       18  

Treasury stock - 5,516 and no shares at September 30, 2017 and December 31, 2016, respectively, at cost

     (116     —    

Additional paid-in capital

     154,959       147,906  

Accumulated deficit

     (28,057     (17,550

Accumulated other comprehensive loss

     (14,468     (17,971
  

 

 

   

 

 

 

Total stockholders’ equity

     112,336       112,403  

Non-redeemable, non-controlling interest

     216       175  
  

 

 

   

 

 

 

Total equity

     112,552       112,578  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 237,848     $ 230,972  
  

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3


Table of Contents

RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2017      2016      2017      2016  
     (in thousands, except per share amounts)  

Revenue

   $ 50,844      $ 50,612      $ 148,078      $ 167,864  
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses:

           

Cost of revenue (excluding depreciation and amortization)

     32,385        29,860        95,298        99,412  

Depreciation and amortization

     7,999        8,305        22,867        25,561  

Impairment of intangible assets

     —          —          —          397  

Selling and marketing

     2,400        1,724        5,968        5,559  

General and administrative

     11,011        10,476        31,401        39,393  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     53,795        50,365        155,534        170,322  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income (loss)

     (2,951      247        (7,456      (2,458

Other income (expense):

           

Interest expense

     (689      (729      (1,921      (2,040

Other income (expense), net

     209        (426      62        (397
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (3,431      (908      (9,315      (4,895

Income tax expense

     (762      (540      (1,075      (2,676
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (4,193      (1,448      (10,390      (7,571

Less: Net income attributable to non-redeemable, non-controlling interest

     39        210        117        171  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to RigNet, Inc. stockholders

   $ (4,232    $ (1,658    $ (10,507    $ (7,742
  

 

 

    

 

 

    

 

 

    

 

 

 

COMPREHENSIVE LOSS

           

Net loss

   $ (4,193    $ (1,448    $ (10,390    $ (7,571

Foreign currency translation

     1,737        (363      3,503        (1,954
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive loss

     (2,456      (1,811      (6,887      (9,525

Less: Comprehensive income (loss) attributable to non-controlling interest

     39        210        117        171  
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive loss attributable to RigNet, Inc. stockholders

   $ (2,495    $ (2,021    $ (7,004    $ (9,696
  

 

 

    

 

 

    

 

 

    

 

 

 

LOSS PER SHARE – BASIC AND DILUTED

           

Net loss attributable to RigNet, Inc. common stockholders

   $ (4,232    $ (1,658    $ (10,507    $ (7,742
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per share attributable to RigNet, Inc. common stockholders, basic

   $ (0.23    $ (0.09    $ (0.58    $ (0.44
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per share attributable to RigNet, Inc. common stockholders, diluted

   $ (0.23    $ (0.09    $ (0.58    $ (0.44
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding, basic

     18,086        17,782        17,982        17,677  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding, diluted

     18,086        17,782        17,982        17,677  
  

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Nine Months Ended September 30,  
     2017      2016  
     (in thousands)  

Cash flows from operating activities:

     

Net loss

   $ (10,390    $ (7,571

Adjustments to reconcile net loss to net cash provided by operations:

     

Depreciation and amortization

     22,867        25,561  

Impairment of intangible assets

     —          397  

Stock-based compensation

     2,949        2,708  

Amortization of deferred financing costs

     192        132  

Deferred taxes

     (271      (1,461

Change in fair value of earn-out/contingent consideration

     (846      (1,279

Accretion of discount of contingent consideration payable for acquisitions

     417        378  

(Gain) loss on sales of property, plant and equipment, net of retirements

     55        (164

Changes in operating assets and liabilities, net of effect of acquisition:

     

Accounts receivable

     (122      10,498  

Costs and estimated earnings in excess of billings on uncompleted contracts

     716        4,078  

Prepaid expenses and other assets

     3,714        (4,927

Accounts payable

     1,697        (475

Accrued expenses

     1,733        (5,741

Deferred revenue and other assets

     6,212        67  

Other liabilities

     (8,035      553  
  

 

 

    

 

 

 

Net cash provided by operating activities

     20,888        22,754  
  

 

 

    

 

 

 

Cash flows from investing activities:

     

Acquisitions

     (32,205      (4,841

Capital expenditures

     (13,186      (11,152

Proceeds from sales of property, plant and equipment

     274        205  

Increase (decrease) in restricted cash

     110        (1,098
  

 

 

    

 

 

 

Net cash used in investing activities

     (45,007      (16,886
  

 

 

    

 

 

 

Cash flows from financing activities:

     

Proceeds from issuance of common stock

     684        1,606  

Subsidiary distributions to non-controlling interest

     (76      (197

Proceeds from borrowings

     15,000        —    

Repayments of long-term debt

     (16,660      (9,420

Payment of financing fees

     —          (100
  

 

 

    

 

 

 

Net cash used in financing activities

     (1,052      (8,111
  

 

 

    

 

 

 

Net change in cash and cash equivalents

     (25,171      (2,243
  

 

 

    

 

 

 

Cash and cash equivalents:

     

Balance, January 1,

     57,152        60,468  

Changes in foreign currency translation

     919        (986
  

 

 

    

 

 

 

Balance, September 30,

   $ 32,900      $ 57,239  
  

 

 

    

 

 

 

Supplemental disclosures:

     

Income taxes paid

   $ 1,515      $ 5,890  

Interest paid

   $ 1,362      $ 1,527  

Property, plant and equipment acquired under capital leases

   $ —        $ 335  

Non-cash investing - capital expenditures accrued

   $ 2,785      $ 653  

Non-cash investing - tenant improvement allowance

   $ 1,728      $ —    

Non-cash investing - contingent consideration for acquisitions

   $ 3,798      $ 5,553  

Non-cash investing and financing - stock for Cyphre Security Solutions

   $ 3,304      $ —    

Liabilities assumed in acquisitions

   $ 674      $ 2,408  

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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RIGNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

                Additional
Paid-In
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
    Total
Stockholders’
Equity
    Non-Redeemable,
Non-Controlling
Interest
    Total
Equity
 
    Common Stock     Treasury Stock              
    Shares     Amount     Shares     Amount              
    (in thousands)  

Balance, January 1, 2016

    17,758     $ 18       —       $ —       $ 143,012     $ (6,043   $ (13,836   $ 123,151     $ 162     $ 123,313  

Issuance of common stock upon the exercise of stock options

    213       —         —         —         1,606       —         —         1,606       —         1,606  

Restricted common stock cancellations

    (44     —         —         —         —         —         —         —         —         —    

Stock-based compensation

    —         —         —         —         2,708       —         —         2,708       —         2,708  

Foreign currency translation

    —         —         —         —         —         —         (1,954     (1,954     —         (1,954

Non-controlling owner distributions

    —         —         —         —         —         —         —         —         (197     (197

Net income (loss)

    —         —         —         —         —         (7,742     —         (7,742     171       (7,571
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2016

    17,927     $ 18       —       $ —       $ 147,326     $ (13,785   $ (15,790   $ 117,769     $ 136     $ 117,905  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2017

    17,933     $ 18       —       $ —       $ 147,906     $ (17,550   $ (17,971   $ 112,403     $ 175     $ 112,578  

Issuance of common stock upon the exercise of stock options

    58       —         —         —         800       —         —         800       —         800  

Issuance of common stock upon the vesting of Restricted Stock Units, net of share cancellations

    48       —         —         —         —         —         —         —         —         —    

Issuance of common stock upon the acquisition of Cyphre

    192       —         —         —         3,304       —         —         3,304       —         3,304  

Stock witheld to cover employee taxes on stock-based compensation

    (6     —         6       (116     —         —         —         (116     —         (116

Stock-based compensation

    —         —         —         —         2,949       —         —         2,949       —         2,949  

Foreign currency translation

    —         —         —         —         —         —         3,503       3,503       —         3,503  

Non-controlling owner distributions

    —         —         —         —         —         —         —         —         (76     (76

Net income (loss)

    —         —         —         —         —         (10,507     —         (10,507     117       (10,390
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2017

    18,225     $ 18       6     $ (116   $ 154,959     $ (28,057   $ (14,468   $ 112,336     $ 216     $ 112,552  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The interim unaudited condensed consolidated financial statements of RigNet, Inc. (the Company or RigNet) include all adjustments which, in the opinion of management, are necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments are of a normal recurring nature. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Rule 10-01 of Regulation S-X. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Estimates and assumptions about future events and their effects cannot be perceived with certainty. Estimates may change as new events occur, as more experience is acquired, as additional information becomes available and as the Company’s operating environment changes. Actual results could differ from estimates. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 6, 2017.

Significant Accounting Policies

Please refer to RigNet’s Annual Report on Form 10-K for fiscal year 2016 for information regarding the Company’s accounting policies.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606). The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued Accounting Standards Update No. 2015-14 (ASU 2015-14), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In March 2016, the FASB issued Accounting Standards Update No. 2016-08 (ASU 2016-08), Revenue from Contracts with Customers: Principal versus Agent Considerations. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April and May of 2016, the FASB issued Accounting Standards Update No. 2016-10 (ASU 2016-10) and Accounting Standards Update No. 2016-12 (ASU 2016-12), Revenue from Contracts with Customers (Topic 606), respectively, that provide scope amendments, performance obligations clarification and practical expedients. These ASUs allow for the use of either the full or modified retrospective transition method and are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company will adopt this ASU on January 1, 2018. The Company’s evaluation of this ASU included a detailed review of representative contracts from each segment and comparing historical accounting policies and practices to the new standard. The Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases. This ASU is effective for annual reporting periods beginning after December 15, 2018. This ASU introduces a new lessee model that generally brings leases on the balance sheet. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (ASU 2016-09), Share Based Compensation. The new ASU simplifies several aspects of share based compensation including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company adopted ASU 2016-09 in the second quarter of 2016 and has applied the guidance as of January 1, 2016. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new ASU reduces diversity of practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics, including the treatment of contingent consideration payments made after a business combination. The ASU is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

 

 

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Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (ASU 2016-18), which includes restricted cash in the cash and cash equivalents balance in the statement of cash flows. The ASU is effective for annual and interim reporting periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the Company’s consolidated financial statements.

Note 2 – Business Combinations

Energy Satellite Services

On July 28, 2017, RigNet acquired substantially all the assets of Energy Satellite Services (ESS). ESS is a supplier of wireless communications services via satellite networks primarily to the midstream sector of the oil and gas industry. The assets acquired enhance RigNet’s Supervisory Control and Data Acquisition (SCADA) customer portfolio, and strengthen the Company’s US land and Internet-of-Things (IoT) market position. The Company paid $22.2 million in cash for the ESS assets. ESS is based in Texas.

The assets and liabilities of ESS have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill.

The goodwill of $8.6 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and ESS, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income tax purposes. The acquisition of ESS, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Applications and Internet-of-Things segment.

 

     Weighted Average
Estimated Useful
Life (Years)
     Fair Market Values  
            (in thousands)  

Accounts Receivable

         $ 168  

Property and equipment

           1,000  

Covenant Not to Compete

     5        3,040     

Customer Relationships

     7        9,870     
     

 

 

    

Total identifiable intangible assets

           12,910  

Goodwill

           8,613  

Accounts Payable

           (491
        

 

 

 

Total purchase price

         $ 22,200  
        

 

 

 

Data Technology Solutions

On July 24, 2017, RigNet acquired substantially all the assets of Data Technology Solutions (DTS). DTS provides comprehensive communications and IT services to the onshore, offshore, and maritime industries, as well as disaster relief solutions to global corporate clients. The Company paid $5.1 million in cash for the DTS assets. DTS is based in Louisiana.

The assets and liabilities of DTS have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill.

The goodwill of $0.6 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and DTS, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income tax purposes. The acquisition of DTS, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Managed Services segment.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     Weighted Average
Estimated Useful
Life (Years)
     Fair Market Values  
            (in thousands)  

Property and equipment

         $ 4,553  

Goodwill

           635  

Accounts Payable

           (83
        

 

 

 

Total purchase price

         $ 5,105  
        

 

 

 

Cyphre Security Solutions

On May 18, 2017, RigNet completed its acquisition of Cyphre Security Solutions (Cyphre) for an estimated aggregate purchase price of $12.0 million. Of this aggregate purchase price, RigNet paid $4.9 million in cash in May 2017, $3.3 million in stock and expects to pay $3.8 million of contingent consideration for intellectual property, estimated as of the date of acquisition. The initial estimate of the contingent consideration for intellectual property is preliminary and remains subject to change based on certain post-closing contractual options under the acquisition agreement. Cyphre is a cybersecurity company that provides advanced enterprise data protection leveraging BlackTIE ® hardware-based encryption featuring low latency protection for files at rest and in transit for both public and private cloud. Cyphre is based in Texas.

The contingent consideration for Cyphre is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss in each reporting period. As of September 30, 2017, the fair value of the contingent consideration was $3.9 million. During the three and nine months ended September 30, 2017, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million with corresponding increases to other liabilities.

The assets and liabilities of Cyphre have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill.

The goodwill of $4.6 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and Cyphre, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. The goodwill recognized is expected to be deductible for income tax purposes. The acquisition of Cyphre, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Applications and Internet-of-Things segment.

 

     Weighted Average
Estimated Useful
Life (Years)
     Fair Market Values  
            (in thousands)  

Property and equipment

         $ 18  

Trade Name

     7        1,590     

Technology

     7        5,571     

Customer Relationships

     7        332     
     

 

 

    

Total identifiable intangible assets

           7,493  

Goodwill

           4,591  

Accrued Expenses

           (100
        

 

 

 

Total purchase price

         $ 12,002  (a) 
        

 

 

 

 

(a) Includes $3.8 million in contingent consideration estimated as of the date of acquisition.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Actual and Pro Forma Impact of the 2017 Acquisitions

The 2017 acquisitions of ESS, DTS and Cyphre contributed $2.4 million of revenue for the three and nine months ended September 30, 2017. The 2017 acquisitions contributed $0.6 million and $0.3 million to net income for the three and nine months ended September 30, 2017, respectively.

The following table represents supplemental pro forma information as if the 2017 acquisitions had occurred on January 1, 2016.

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2017      2016      2017      2016  
     (in thousands, except per share amounts)  

Revenue

   $ 52,150      $ 54,722      $ 158,085      $ 180,602  

Expenses

     55,993        54,552        165,484        183,575  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

   $ (3,843    $ 170      $ (7,399    $ (2,973
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to RigNet, Inc. common stockholders

   $ (3,882    $ (40    $ (7,516    $ (3,144
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per share attributable to RigNet, Inc. common stockholders:

           

Basic

   $ (0.21    $ (0.00    $ (0.42    $ (0.18
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ (0.21    $ (0.00    $ (0.42    $ (0.18
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three and nine months ended September 30, 2017, RigNet incurred $0.8 million and $2.7 million, respectively, of acquisition-related costs, which are reported as general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive Loss. Additional costs related to these acquisitions will be incurred and recorded as expense during the remainder of 2017.

TECNOR

On February 4, 2016, RigNet completed its acquisition of Orgtec S.A.P.I. de C.V., d.b.a. TECNOR (TECNOR) for an estimated aggregate purchase price of $11.4 million. Of this aggregate purchase price, RigNet paid $4.8 million in cash in February 2016, paid $0.1 million for final net working capital and expected to pay a $6.5 million contingent consideration earn-out, estimated as of the date of acquisition. The initial estimate of the earn-out payable was preliminary and remains subject to change based on the achievement of certain post-closing performance targets under the acquisition agreement. The maximum earn-out is $21.3 million. TECNOR provides telecommunications solutions for remote sites on land, sea and air, including a wide array of equipment, voice and data services, satellite coverage and bandwidth options in Mexico. These services are provided to industrial, commercial and private users in diverse activity segments including mission critical military and government applications, oil and gas operations, commercial fishing and leisure. TECNOR is based in Monterrey, Mexico.

The assets and liabilities of TECNOR have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying net tangible and identifiable intangible assets and liabilities has been recorded as goodwill.

The earn-out for TECNOR is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss in each reporting period. As of September 30, 2017, the fair value of the earn-out was $5.2 million. There was a $0.8 million reduction in fair value to the TECNOR earn-out for the nine months ended September 30, 2017 recorded as a reduction of other current liabilities and a decrease to general and administrative expense in the Corporate segment. The change in fair value was due to a forecast of TECNOR’s future achievement of the post-closing performance targets. During the three and nine months ended September 30, 2017, RigNet recognized accreted interest expense on the TECNOR earn-out liability of $0.1 million and $0.4 million, respectively, with corresponding increases to other current liabilities. The earn-out is payable in 2018.

The goodwill of $6.5 million arising from the acquisition consists largely of growth prospects, synergies and other benefits that the Company believes will result from combining the operations of the Company and TECNOR, as well as other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes. The acquisition of TECNOR, including goodwill, is included in the Company’s condensed consolidated financial statements as of the acquisition date and is reflected in the Managed Services segment.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     Weighted Average
Estimated Useful
Life (Years)
     Fair Market Values  
            (in thousands)  

Accounts Receivable

         $ 2,672  

Other assets

           1,280  

Property and equipment

           809  

Backlog

     2        366     

Customer Relationships

     7        2,210     
     

 

 

    

Total identifiable intangible assets

           2,576  

Goodwill

           6,465  

Accounts Payable

           (1,914

Accrued Expenses

           (494
        

 

 

 

Total purchase price

         $ 11,394  (a) 
        

 

 

 

 

(a) Includes a $6.5 million contingent consideration earn-out, estimated as of the date of acquisition.

For the nine months ended September 30, 2016, RigNet incurred $0.2 million of acquisition-related costs, which are reported as general and administrative expense in the Company’s Condensed Consolidated Statements of Comprehensive Loss.

Actual and Pro Forma Impact of the TECNOR Acquisition

TECNOR’s revenue and net loss were $2.0 million and $0.7 million, respectively, for the three months ended September 30, 2016. TECNOR’s revenue and net loss were $7.1 million and $0.1 million, respectively, for the nine months ended September 30, 2016.

The following table represents supplemental pro forma information as if the TECNOR acquisition had occurred on January 1, 2016. Pro forma adjustments include:

 

    Adjusting interest expense to remove interest on a debt instrument previously held by TECNOR; and

 

    Removing nonrecurring transaction costs incurred in 2016 prior to acquisition.

 

    

Nine Months Ended

September 30,

 
     2016  
    

(in thousands, except per

share amounts)

 

Revenue

   $ 168,899  

Expenses

     176,267  
  

 

 

 

Net loss

   $ (7,368
  

 

 

 

Net loss attributable to RigNet, Inc. common stockholders

   $ (7,539
  

 

 

 

Net loss per share attributable to RigNet, Inc. common stockholders:

  

Basic

   $ (0.43
  

 

 

 

Diluted

   $ (0.43
  

 

 

 

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 3 – Business and Credit Concentrations

The Company is exposed to various business and credit risks including interest rate, foreign currency, credit and liquidity risks.

Interest Rate Risk

The Company has significant interest-bearing liabilities at variable interest rates which generally price monthly. The Company’s variable borrowing rates are tied to LIBOR resulting in interest rate risk (see Note 6 – Long-Term Debt). The Company presently does not use financial instruments to hedge interest rate risk, but evaluates this on a regular basis and may utilize financial instruments in the future if deemed necessary.

Foreign Currency Risk

The Company has exposure to foreign currency risk, as a portion of the Company’s activities are conducted in currencies other than U.S. dollars. Currently, the Norwegian kroner and the British pound sterling are the currencies that could materially impact the Company’s financial position and results of operations. The Company presently does not hedge these risks, but evaluates financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. Foreign currency translations are reported as accumulated other comprehensive loss in the Company’s condensed consolidated financial statements.

Credit Risk

Credit risk, with respect to accounts receivable, is due to the limited number of customers concentrated in the oil and gas industry. The Company mitigates the risk of financial loss from defaults through defined collection terms in each contract or service agreement and periodic evaluations of the collectability of accounts receivable. The Company provides an allowance for doubtful accounts which is adjusted when the Company becomes aware of a specific customer’s inability to meet its financial obligations or as a result of changes in the overall aging of accounts receivable.

Liquidity Risk

The Company maintains cash and cash equivalent balances with major financial institutions which, at times, exceed federally insured limits. The Company monitors the financial condition of the financial institutions and has not experienced losses associated with these accounts during 2017 or 2016. Liquidity risk is managed by continuously monitoring forecasted and actual cash flows and by matching the maturity profiles of financial assets and liabilities (see Note 6 – Long-Term Debt).

Note 4 – Goodwill and Intangibles

Goodwill

Goodwill resulted from prior acquisitions as the consideration paid for the acquired businesses exceeded the fair value of acquired identifiable net tangible and intangible assets. Goodwill is reviewed for impairment at least annually with additional evaluations being performed when events or circumstances indicate that the carrying value of these assets may not be recoverable.

Due to the change in segments (see Note 12 – Segment Information) and reporting units during the third quarter of 2017, the Company re-allocated goodwill to each reporting unit based on relative fair value.

The Company acquired $8.6 million of goodwill in the ESS acquisition completed on July 28, 2017 (see Note 2 – Business Combinations).

The Company acquired $0.6 million of goodwill in the DTS acquisition completed on July 24, 2017 (see Note 2 – Business Combinations).

The Company acquired $4.6 million of goodwill in the Cyphre acquisition completed on May 18, 2017 (see Note 2 – Business Combinations).

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company acquired $6.5 million of goodwill in the TECNOR acquisition completed on February 4, 2016 (see Note 2 – Business Combinations).

The Company performs its annual impairment test on July 31 st of each year, with the most recent annual test being performed as of July 31, 2017. The July 2017 annual test resulted in no impairment as the fair value of each reporting unit exceeded the carrying value plus goodwill of that reporting unit. No impairment indicators have been identified in any reporting unit as of September 30, 2017 and December 31, 2016.

As of September 30, 2017 and December 31, 2016, goodwill was $37.1 million and $22.0 million, respectively. Goodwill increases or decreases in value due to the effect of foreign currency translation, and increases with acquisitions.

Intangibles

Intangibles consist of customer relationships, non-competes, brand name, technology, backlog and licenses acquired as part of the Company’s acquisitions. Intangibles also include internal-use software. The Company’s intangibles have useful lives ranging from 1.7 to 7.0 years and are amortized on a straight-line basis. Impairment testing is performed when events or circumstances indicate that the carrying value of the assets may not be recoverable.

In June 2016, the Company identified a triggering event for a license in Kazakhstan associated with a decline in cash flow projections. In June 2016, the Company conducted an intangibles impairment test and as a result of such test, recognized a $0.4 million impairment of licenses in the Corporate segment, which was the full amount of the Company’s intangibles within Kazakhstan.

No impairment indicators have been identified in any reporting unit as of September 30, 2017.

As of September 30, 2017 and December 31, 2016, intangibles were $32.3 million and $16.0 million, respectively. During the three months ended September 30, 2017 and 2016, the Company recognized amortization expense of $1.9 million and $1.3 million, respectively. During the nine months ended September 30, 2017 and 2016, the Company recognized amortization expense of $4.7 million and $3.9 million, respectively.

The following table sets forth expected amortization expense of intangibles for the remainder of 2017 and the following years (in thousands):

 

2017

     1,833  

2018

     7,047  

2019

     5,988  

2020

     5,021  

2021

     4,679  

Thereafter

     7,773  
  

 

 

 
   $ 32,341  
  

 

 

 

Note 5 – Restricted Cash

As of September 30, 2017, the Company had restricted cash of $0.1 million and $1.5 million, in current and long-term assets, respectively. As of December 31, 2016, the Company had restricted cash of $0.1 million and $1.5 million, in current and long-term assets, respectively. The restricted cash in long-term assets was primarily used to collateralize a performance bond in the Managed Services segment (see Note 6 – Long-Term Debt). The restricted cash in current assets as of December 31, 2016 was an escrowed portion of the purchase price for the acquisition of TECNOR.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 6 – Long-Term Debt

As of September 30, 2017 and December 31, 2016, the following credit facilities and long-term debt arrangements with financial institutions were in place:

 

     September 30,      December 31,  
     2017      2016  
     (in thousands)  

Term loan, net of unamortized deferred financing costs

   $ 27,757      $ 34,053  

Revolving loan

     32,000        27,000  

Capital lease

     243        415  
  

 

 

    

 

 

 
     60,000        61,468  

Less: Current maturities of long-term debt

     (8,418      (8,399

Current maturities of capital lease

     (127      (79
  

 

 

    

 

 

 
   $ 51,455      $ 52,990  
  

 

 

    

 

 

 

Term Loan

As of September 30, 2017, the Company has a term loan (Term Loan) issued under the second amended and restated credit agreement with four participating financial institutions (credit agreement). On October 3, 2013, the Company amended its Term Loan, which increased the principal balance to $60.0 million from $54.6 million and extended the maturity of the loan from July 2017 to October 2018.

The amended Term Loan bears an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5% based on a ratio of funded debt to Consolidated EBITDA, a non-GAAP financial measure as defined in the credit agreement. Interest is payable monthly along with quarterly principal installments of $2.1 million, with the balance due October 2018. The weighted average interest rate for the three months ended September 30, 2017 and 2016 was 3.2% and 2.5%, respectively. The weighted average interest rate for the nine months ended September 30, 2017 and 2016 was 3.1% and 2.4%, respectively, with an interest rate of 3.2% at September 30, 2017.

The Term Loan is secured by substantially all the assets of the Company. As of September 30, 2017, the Term Loan had an outstanding principal balance of $27.9 million.

Revolving Loans

As of September 30, 2017, under the credit agreement, the Company maintains a $75.0 million revolving credit facility, which includes a $15 million sublimit for the issuance of standby letters of credit. As of September 30, 2017, $32.0 million in draws remain outstanding on the revolving credit facility. The revolving credit facility matures in October 2018 with any outstanding borrowings then payable. As of September 30, 2017, there were $6.3 million in standby letters of credit issued.

The revolving loan bears an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5% based on a ratio of funded debt to Consolidated EBITDA, a non-GAAP financial measure as defined in the credit agreement. The weighted average interest rate for the three months ended September 30, 2017 and 2016 was 3.2% and 2.5%, respectively. The weighted average interest rate for the nine months ended September 30, 2017 and 2016 was 3.1% and 2.4%, respectively, with an interest rate of 3.2% at September 30, 2017.

Performance Bonds

On September 14, 2012, NesscoInvsat Limited, a subsidiary of RigNet, secured a performance bond facility with a lender in the amount of £4.0 million, or $5.4 million. This facility has a maturity date of October 3, 2018. As of September 30, 2017, the amount available under this facility was £2.1 million or $2.9 million. As of September 30, 2017, there were $5.6 million in standby letters of credit issued to collateralize this performance bond facility.

In June 2016, the Company secured a performance bond facility with a lender in the amount of $1.5 million for its Managed Services segment. This facility has a maturity date of June 2021. The Company maintains restricted cash on a dollar for dollar basis to secure this facility.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Covenants and Restrictions

The Company’s credit agreement contains certain covenants and restrictions, including restricting the payment of cash dividends and maintaining certain financial covenants such as a ratio of funded debt to Consolidated EBITDA, a non-GAAP financial measure as defined in the credit agreement, of less than or equal to 2.5 to 1.0 and a fixed charge coverage ratio of not less than 1.25 to 1.0 as of September 30, 2017. If any default occurs related to these covenants, the unpaid principal and any accrued interest shall be declared immediately due and payable. As of September 30, 2017, and December 31, 2016, the Company believes it was in compliance with all covenants in the credit agreement.

In February 2016, the Company amended its credit agreement with the most significant changes being the definition of Consolidated EBITDA, the calculation of the fixed charge coverage ratio and the timing associated with delivery of financial statements and compliance certificates to the administrative agent.

In December 2016, the Company further amended its credit agreement with the most significant changes being voluntarily reducing the revolving credit facility from $125 million to $75 million and changing the definition of Consolidated EBITDA and certain other definitions contained in the credit agreement.

Debt Maturities

The following table sets forth the aggregate principal maturities of long-term debt, net of deferred financing cost amortization for the remainder of 2017 and the following years (in thousands):

 

2017

     2,154  

2018

     57,770  

2019

     76  
  

 

 

 

Total debt, including current maturities

   $ 60,000  
  

 

 

 

New Credit Facilities

On November 6, 2017, the Company entered into its third amended and restated credit agreement with four participating financial institutions. The credit agreement provides for a $15.0 million term loan facility and an $85.0 million revolving credit facility and matures on November 6, 2020.

Under the credit agreement, both the term loan facility and the revolving credit facility bear interest at a rate of LIBOR plus a margin ranging from 1.75% to 2.75% based on a consolidated leverage ratio defined in the credit agreement. Interest is payable monthly and principal installments of $1.25 million under the term loan facility are due quarterly beginning March 31, 2018. The credit agreement incorporates two financial covenants, including a consolidated leverage ratio and a consolidated fixed charge coverage ratio. The revolving credit facility contains a sub-limit of up to $25.0 million for commercial and stand-by letters of credit.

The facilities under the credit agreement are secured by substantially all the assets of the Company.

Note 7 – Fair Value Disclosures

The Company uses the following methods and assumptions to estimate the fair value of financial instruments:

 

    Cash and Cash Equivalents — Reported amounts approximate fair value based on quoted market prices (Level 1).

 

    Restricted Cash — Reported amounts approximate fair value.

 

    Accounts Receivable — Reported amounts, net of the allowance for doubtful accounts, approximate fair value due to the short-term nature of these assets.

 

    Accounts Payable, Including Income Taxes Payable and Accrued Expenses — Reported amounts approximate fair value due to the short-term nature of these liabilities.

 

    Long-Term Debt — The carrying amount of the Company’s floating-rate debt approximates fair value since the interest rates paid are based on short-term maturities and recent quoted rates from financial institutions. The estimated fair value of debt was calculated based upon observable (Level 2) inputs regarding interest rates available to the Company at the end of each respective period.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company’s non-financial assets, such as goodwill, intangibles and property, plant and equipment, are measured at fair value, based on level 3 inputs, when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.

The contingent consideration for Cyphre is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss in each reporting period. As of September 30, 2017, the fair value of the contingent consideration was $3.9 million. During the three and nine months ended September 30, 2017, RigNet recognized accreted interest expense on the Cyphre contingent consideration of $0.1 million with corresponding increases to other liabilities.

The earn-out for TECNOR is measured at fair value, based on level 3 inputs, with any change to fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss in each reporting period. As of September 30, 2017, the fair value of the earn-out was $5.2 million. As of December 31, 2016, the fair value of the earn-out was $5.7 million. There was a $0.8 million reduction in fair value to the TECNOR earn-out for the nine months ended September 30, 2017 recorded as a reduction of other current liabilities and a decrease to general and administrative expense in the Corporate segment. The change in fair value was due to a forecast of TECNOR’s future achievement of the post-closing performance targets. During the three and nine months ended September 30, 2017, RigNet recognized accreted interest expense on the TECNOR earn-out liability of $0.1 million and $0.4 million, respectively, with corresponding increases to other liabilities. (see Note 2 – Business Combinations).

Note 8 – Income Taxes

The Company’s effective income tax rate was (22.2%) and (11.5%) for the three and nine months ended September 30, 2017, respectively. The Company’s effective income tax rate was (59.5%) and (54.7%) for the three and nine months ended September 30, 2016, respectively. The Company’s effective tax rate is affected by factors including changes in valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

The Company has computed the provision for taxes for the current and comparative periods using the actual year-to-date effective tax rate. The Company’s financial projections for those periods did not provide the level of detail necessary to calculate a forecasted effective tax rate.

The Company believes that it is reasonably possible that a decrease of up to $3.2 million in unrecognized tax benefits, including related interest and penalties, may be necessary within the coming year due to lapse in statute of limitations.

Note 9 – Stock-Based Compensation

During the nine months ended September 30, 2017, the Company granted a total of 226,974 restricted stock units (RSUs) to certain directors, officers and employees of the Company under the 2010 Omnibus Incentive Plan (2010 Plan). Of these, the Company granted (i) 125,852 RSUs to certain officers and employees that generally vest over a four year period of continued employment, with 25% of the RSUs vesting on each of the first four anniversaries of the grant date, (ii) 33,586 RSUs issued to directors that vest in May 2018 and (iii) 67,536 performance share units (PSUs) to certain officers and employees that generally cliff vest on the third anniversary of the grant date and are subject to continued employment and certain performance based targets. The ultimate number of PSUs issued is based on a multiple determined by certain performance based targets.

The fair value of restricted stock units is determined based on the closing trading price of the Company’s common stock on the grant date of the award. Compensation expense is recognized on a straight-line basis over the requisite service period of the entire award.

During the nine months ended September 30, 2017, 126,788 RSUs and 28,445 stock options were forfeited.

Stock-based compensation expense related to the Company’s stock-based compensation plans for the three months ended September 30, 2017 and 2016 was $1.0 million and $0.9 million, respectively. Stock-based compensation expense related to the Company’s stock-based compensation plans for the nine months ended September 30, 2017 and 2016 was $2.9 million and $2.7 million, respectively. As of September 30, 2017, there was $8.3 million of total unrecognized compensation cost related to unvested options and restricted stock expected to vest. This cost is expected to be recognized over a remaining weighted-average period of 1.8 years.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 10 – Earnings (loss) per Share

Basic earnings (loss) per share (EPS) are computed by dividing loss attributable to RigNet common stockholders by the number of basic shares outstanding. Basic shares equal the total of the common shares outstanding, weighted for the average days outstanding for the period. Basic shares exclude the dilutive effect of common shares that could potentially be issued due to the exercise of stock options or vesting of restricted stock and RSUs. Diluted EPS is computed by dividing loss attributable to RigNet common stockholders by the number of diluted shares outstanding. Diluted shares equal the total of the basic shares outstanding and all potentially issuable shares, other than antidilutive shares, if any, weighted for the average days outstanding for the period. The Company uses the treasury stock method to determine the dilutive effect. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, basic and dilutive loss per share are the same.

For the three and nine months ended September 30, 2017, there were approximately 723,296 and 644,858 potentially issuable shares, respectively, excluded from the Company’s calculation of diluted EPS that were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.

For the three and nine months ended September 30, 2016, there were approximately 1,919,696 and 1,228,397 potentially issuable shares, respectively, excluded from the Company’s calculation of diluted EPS that were excluded because the Company incurred a loss in the period and to include them would have been anti-dilutive.

Note 11 – Commitments and Contingencies

Global Xpress (GX) Dispute

Inmarsat plc (Inmarsat), a satellite telecommunications company, and the Company are in a dispute relating to a January 2014 agreement regarding the purchase by the Company of up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years (GX dispute). The parties are attempting to resolve the GX dispute through a contractually-stipulated arbitration process that began in October 2016. The parties dispute whether Inmarsat has met its contractual obligations with respect to the service under the agreement. In July 2017, pursuant to its contractual rights under the agreement, the Company delivered a notice of termination of the agreement to Inmarsat.

The Company has incurred legal expenses of $0.8 million in connection with the GX dispute for the nine months ended September 30, 2017. The Company may continue to incur significant legal fees, related expenses and management time in the future. The Company cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.

Based on the information available at this time and management’s understanding of the GX dispute, the Company does not deem the likelihood of a material loss related to this dispute to be probable, so it has not accrued any liability related to the dispute. At this stage of the arbitration, the range of possible loss is not reasonably estimable, but could range from zero to the maximum amount payable under the contract for the services plus expenses.

Other Litigation

The Company, in the ordinary course of business, is a claimant or a defendant in various legal proceedings, including proceedings as to which the Company has insurance coverage and those that may involve the filing of liens against the Company or its assets.

Sales Tax Audit

The company is undergoing a routine sales tax audit in a state where it has operations for the period from August of 2011 to May of 2015. It is expected that the audit and the appeals process, if necessary, will be completed within the next three months. The Company does not believe that the outcome of the audit will result in a material impact to the consolidated financial statements.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Contractual Dispute Settlement

The Company’s Systems Integration business reached a settlement in the first quarter of 2016 related to a contract dispute associated with a percentage of completion project. The dispute related to the payment for work related to certain change orders. After the settlement, the Company recognized $2.3 million of gain in the first quarter of 2016. In the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, the Company reported that it had received the certificate of final acceptance from the customer acknowledging completion of the project. The total loss incurred over the life of this project amounted to $11.2 million.

The Company incurred legal expenses of $0.2 million in connection with the dispute for the nine months ended September 30, 2016.

Operating Leases

The Company leases office space under lease agreements expiring on various dates through 2025. For the three months ended September 30, 2017 and 2016, the Company recognized expense under operating leases of $0.9 million and $1.2 million, respectively. For the nine months ended September 30, 2017 and 2016, the Company recognized expense under operating leases of $2.9 million and $3.4 million, respectively.

As of September 30, 2017, future minimum lease obligations for the remainder of 2017 and future years were as follows (in thousands):

 

2017

     794  

2018

     1,871  

2019

     1,316  

2020

     886  

2021

     468  

Thereafter

     1,750  
  

 

 

 
   $ 7,085  
  

 

 

 

Commercial Commitments

The Company enters into contracts for satellite bandwidth and other network services with certain providers.

As of September 30, 2017, the Company had the following commercial commitments related to satellite and network services for the remainder of 2017 and the future years thereafter (in thousands):

 

2017

     4,501  

2018

     13,494  

2019

     5,920  

2020

     473  

2021

     455  
  

 

 

 
   $ 24,843  
  

 

 

 

The Company is no longer reporting $65.0 million in the above table for capacity from Inmarsat’s GX network. Please see paragraph “Global Express (GX) Dispute” above for details of the ongoing arbitration and the Company’s notice to terminate the contract with Inmarsat.

Note 12 – Segment Information

Segment information is prepared consistent with the components of the enterprise for which separate financial information is available and regularly evaluated by the chief operating decision-maker for the purpose of allocating resources and assessing performance.

The Company previously operated under two reportable segments: Managed Services and Systems Integration (previously called SI&A). During the third quarter of 2017, after the Company completed the ESS acquisition, the Company reorganized its

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

business and reportable segments. Applications and Internet-of-Things is now managed and presented as a separate segment, and was previously presented in the Managed Services segment. All historical segment financial data included herein has been recast to conform to the current year presentation.

RigNet considers its business to consist of the following segments:

 

    Managed Services. The Managed Services segment provides remote communications, telephony and technology services for offshore and onshore drilling rigs and production facilities, support vessels, and other remote sites.

 

    Applications and Internet-of-Things (Apps  & IoT). The Apps & IoT segment provides applications over-the-top of the Managed Services including Supervisory Control and Data Acquisition (SCADA) and Software as a Service (SaaS) offerings including BlackTIE ® encryption, weather monitoring primarily in the North Sea (METOCEAN) and certain other value added services such as Adaptive Video Intelligence (AVI).

 

    Systems Integration. The Systems Integration segment provides design and implementation services for customer telecommunications systems. Solutions are delivered based on the customer’s specifications, adhering to international industry standards and best practices. Project services may include consulting, design, engineering, project management, procurement, testing, installation, commissioning and maintenance.

Corporate and eliminations primarily represents unallocated corporate office activities, interest expense, income taxes and eliminations.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company’s business segment information as of and for the three and nine months ended September 30, 2017 and 2016, is presented below.

 

     Three Months Ended September 30, 2017  
     Managed
Services
     Applications
and
Internet-of-

Things
     Systems
Integration
    Corporate and
Eliminations
    Consolidated
Total
 
     (in thousands)  

Revenue

   $ 40,243      $ 4,985      $ 5,616     $ —       $ 50,844  

Cost of revenue (excluding depreciation and amortization)

     24,902        3,394        4,089       —         32,385  

Depreciation and amortization

     5,263        835        615       1,286       7,999  

Selling, general and administrative

     3,013        363        280       9,755       13,411  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 7,065      $ 393      $ 632     $ (11,041   $ (2,951
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Capital expenditures

     5,655        198        —         —         5,853  
     Three Months Ended September 30, 2016  
     Managed
Services
     Applications
and
Internet-of-

Things
     Systems
Integration
    Corporate and
Eliminations
    Consolidated
Total
 
     (in thousands)  

Revenue

   $ 45,653      $ 1,552      $ 3,407     $ —       $ 50,612  

Cost of revenue (excluding depreciation and amortization)

     26,253        696        2,911       —         29,860  

Depreciation and amortization

     6,716        —          631       958       8,305  

Selling, general and administrative

     5,235        67        499       6,399       12,200  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 7,449      $ 789      $ (634   $ (7,357   $ 247  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Capital expenditures

     1,936        —          —         —         1,936  
     Nine Months Ended September 30, 2017  
     Managed
Services
     Applications
and
Internet-of-

Things
     Systems
Integration
    Corporate and
Eliminations
    Consolidated
Total
 
     (in thousands)  

Revenue

   $ 122,531      $ 9,846      $ 15,701     $ —       $ 148,078  

Cost of revenue (excluding depreciation and amortization)

     75,798        6,844        12,656       —         95,298  

Depreciation and amortization

     17,509        849        1,813       2,696       22,867  

Selling, general and administrative

     12,435        1,149        1,179       22,606       37,369  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 16,789      $ 1,004      $ 53     $ (25,302   $ (7,456
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

     184,678        33,353        15,857       3,960       237,848  

Capital expenditures

     13,081        198        —         645       13,924  
     Nine Months Ended September 30, 2016  
     Managed
Services
     Applications
and
Internet-of-

Things
     Systems
Integration
    Corporate and
Eliminations
    Consolidated
Total
 
     (in thousands)  

Revenue

   $ 146,766      $ 5,079      $ 16,019     $ —       $ 167,864  

Cost of revenue (excluding depreciation and amortization)

     85,455        2,176        11,781       —         99,412  

Depreciation and amortization

     20,032        —          2,127       3,402       25,561  

Impairment of goodwill and intangible assets

     —          —          —         397       397  

Selling, general and administrative

     20,631        201        2,141       21,979       44,952  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 20,648      $ 2,702      $ (30   $ (25,778   $ (2,458
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

     213,739        —          26,139       4,800       244,678  

Capital expenditures

     10,365        —          —         1,146       11,511  

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following table presents revenue earned from the Company’s domestic and international operations for the three and nine months ended September 30, 2017 and 2016. Revenue is based on the location where services are provided or goods are sold. Due to the mobile nature of RigNet’s customer base and the services provided, the Company works closely with its customers to ensure rig or vessel moves are closely monitored to ensure location of service information is properly reflected.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2017      2016      2017      2016  
     (in thousands)  

Domestic

   $ 17,136      $ 11,555      $ 46,110      $ 43,783  

International

     33,708        39,057        101,968        124,081  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 50,844      $ 50,612      $ 148,078      $ 167,864  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents goodwill and long-lived assets, net of accumulated depreciation, for the Company’s domestic and international operations as of September 30, 2017 and December 31, 2016.

 

     September 30,      December 31,  
     2017      2016  
     (in thousands)  

Domestic

   $ 70,309      $ 27,682  

International

     62,049        70,101  
  

 

 

    

 

 

 

Total

   $ 132,358      $ 97,783  
  

 

 

    

 

 

 

Note 13 – Restructuring Costs – Cost Reduction Plans

During the three and nine months ended September 30, 2017, the Company incurred a net pre-tax restructuring expense of $0.8 million reported as general and administrative expense in the Corporate segment associated with the reduction of 31 employees.

During the three months ended September 30, 2016, the Company incurred a net pre-tax restructuring expense of $0.8 million reported as general and administrative expense in the Corporate segment consisting of $1.8 million of expense associated with the reduction of 73 employees partially offset by a net $1.0 million reversal of previously accrued restructuring charges for real estate exit costs not incurred.

During the nine months ended September 30, 2016, the Company incurred net pre-tax restructuring expense of $1.3 million reported as general and administrative expense in the Corporate segment consisting of $2.7 million associated with the reduction of 115 employees partially offset by a net $1.4 million reversal of previously accrued restructuring charges for employees that the Company did not release and real estate exit expense not incurred. The Company undertook restructuring plans to reduce costs and improve the Company’s competitive position.

Note 14 – Executive Departure costs

Marty Jimmerson, the Company’s former CFO, served as Interim CEO and President from January 7, 2016 to May 31, 2016, to replace Mark Slaughter, the prior CEO and President. Mr. Jimmerson departed the Company on June 1, 2016. In connection with the departure of Mr. Slaughter, in the first quarter of 2016 the Company incurred a pre-tax executive departure expense of $1.9 million in the Corporate segment. On May 31, 2016, Steven E. Pickett was named CEO and President of the Company.

 

 

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Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements as of September 30, 2017 and for the three and nine months ended September 30, 2017 and 2016 included elsewhere herein, and with our annual report on Form 10-K for the year ended December 31, 2016. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Item 1A of our annual report and elsewhere in this quarterly report. See “Forward-Looking Statements” below.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. These statements may include statements about:

 

    new regulations, delays in drilling permits or other changes in the drilling industry;

 

    competition and competitive factors in the markets in which we operate;

 

    demand for our services and solutions;

 

    the advantages of our services compared to others;

 

    changes in technology and customer preferences and our ability to adapt our product and services offerings;

 

    our ability to develop and maintain positive relationships with our customers;

 

    our ability to retain and hire necessary employees and appropriately staff our marketing, sales and distribution efforts;

 

    our cash needs and expectations regarding cash flow from operations and capital expenditures;

 

    our expectations regarding the deductibility of goodwill for tax purposes;

 

    our ability to manage and grow our business and execute our business strategy, including expanding our penetration of the U.S. and international onshore and offshore drilling rigs and expanding our business into remote communication market adjacencies;

 

    our strategy and acquisitions;

 

    our ability to pursue, consummate and integrate merger and acquisition opportunities successfully;

 

    the GX dispute

 

    our resource reallocation activities and related expenses; and

 

    our financial performance, including our ability to expand Adjusted EBITDA through our operational leverage.

In some cases, forward-looking statements can be identified by terminology such as “may,” “could,” “should,” “would,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology that convey uncertainty of future events or outcomes. All of these types of statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, are forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on Company expectations, which reflect estimates and assumptions made by Company management. These estimates and assumptions reflect management’s best judgment based on currently known market conditions and other factors. Although the Company believes such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond its control. In addition, management’s assumptions may prove to be inaccurate. The Company cautions that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and it cannot assure any reader that such statements will be realized or the forward-looking statements or events will occur. Future results may differ materially from those anticipated or implied in forward-looking statements due to factors listed in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2016 and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual future results, performance or achievements may vary materially from any projected future results, performance or achievements expressed or implied by these forward-looking statements.

 

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Table of Contents

The forward-looking statements speak only as of the date made, and other than as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Our Operations

We are a global technology company that provides customized communications services, applications and cybersecurity solutions enhancing customer decision making and business performance. We provide solutions ranging from fully-managed voice and data networks to more advanced applications that include video conferencing, asset and weather monitoring, real-time data services and cybersecurity under a multi-service recurring revenue model.

Customers use our private networks to manage information flows and execute mission-critical operations primarily in remote areas where conventional telecommunications infrastructure is either unreliable or unavailable. We provide our clients what is often the sole means of communications for their remote operations.

Network service customers are primarily served under fixed-price contracts, either on a monthly or day rate basis or for equipment sales. Our contracts are generally in the form of Master Service Agreements, or MSAs, with specific services being provided under individual service orders that have a term of one to three years with renewal options, while land-based locations are generally shorter term or terminable on short notice without a penalty. Service orders are executed under the MSA for individual remote sites or groups of sites, and generally may be terminated early on short notice without penalty in the event of force majeure, breach of the MSA or cold stacking of a drilling rig (when a rig is taken out of service and is expected to be idle for a protracted period of time).

Segment information is prepared consistent with the components of the enterprise for which separate financial information is available and regularly evaluated by the chief operating decision-maker for the purpose of allocating resources and assessing performance.

We previously operated our business under two reportable segments: Managed Services and Systems Integration (previously called SI&A). During the third quarter of 2017, after we completed the ESS acquisition, we reorganized our business and reportable segments. Applications and Internet-of-Things is now managed and presented as a separate segment, and was previously presented in the Managed Services segment. All historical segment financial data included herein has been recast to conform to the current year presentation. We now operate three reportable segments, which are managed as distinct segments by our chief operating decision-maker.

 

    Managed Services. Our Managed Services segment provides remote communications, telephony and technology services for offshore and onshore drilling rigs and production facilities, support vessels, and other remote sites.

 

    Applications and Internet-of-Things (Apps  & IoT). Our Apps & IoT segment provides applications over-the-top of the Managed Services including Supervisory Control and Data Acquisition (SCADA) and Software as a Service (SaaS) offerings including BlackTIE ® encryption, weather monitoring primarily in the North Sea (METOCEAN) and certain other value added services such as Adaptive Video Intelligence (AVI).

 

    Systems Integration. Our Systems Integration segment provides design and implementation services for customer telecommunications systems. Solutions are delivered based on the customer’s specifications, adhering to international industry standards and best practices. Project services may include consulting, design, engineering, project management, procurement, testing, installation, commissioning and maintenance.

Cost of revenue consists primarily of satellite charges, voice and data termination costs, network operations expenses, internet connectivity fees, equipment purchases for Systems Integration projects and direct service labor. Satellite charges consist of the costs associated with obtaining satellite bandwidth (the measure of capacity) used in the transmission of service to and from leased satellites. Direct service labor consists of field technicians, our Network Operations Center (NOC) employees, and other employees who directly provide services to customers. Network operations expenses consist primarily of costs associated with the operation of our NOC, which is maintained 24 hours a day, seven days a week. Depreciation and amortization is recognized on all property, plant and equipment either installed at a customer’s site or held at our corporate and regional offices, as well as intangibles arising from acquisitions and internal use software. Selling and marketing expenses consist primarily of salaries and commissions, travel costs and marketing communications. General and administrative expenses consist of expenses associated with our management, finance, contract, support and administrative functions.

 

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Profitability generally increases or decreases at a site as we add or lose customers and value-added services. Assumptions used in developing the rates for a site may not cover cost variances from inherent uncertainties or unforeseen obstacles, including both physical conditions and unexpected problems encountered with third party service providers.

Recent Developments

On November 6, 2017, we entered into our third amended and restated credit agreement, which provides for a $15.0 million term loan facility and an $85.0 million revolving credit facility that matures on November 6, 2020 with interest payable monthly at a rate of LIBOR plus a margin ranging from 1.75% to 2.75% based on a consolidated leverage ratio and principal payments of $1.25 million due quarterly beginning March 31, 2018.

During the third quarter of 2017, we incurred restructuring expense of $0.8 million associated with the reduction of 31 employees.

On July 28, 2017, we acquired substantially all the assets of Energy Satellite Services (ESS). ESS is a supplier of wireless communications services via satellite networks primarily to the midstream sector of the oil and gas industry. The assets acquired enhance our product offering, add to our existing midstream Supervisory Control and Data Acquisition (SCADA) customer portfolio, and strengthen our IoT market position. We paid $22.2 million in cash for the ESS assets. ESS is based in Texas.

On July 24, 2017, we acquired substantially all the assets of Data Technology Solutions (DTS). DTS provides comprehensive communications and IT services to the onshore, offshore, and maritime industries, as well as disaster relief solutions to global corporate clients. We paid $5.1 million in cash for the DTS assets. DTS is based in Louisiana.

In July 2017, we delivered a notice of termination of an agreement with Inmarsat to acquire capacity from Inmarsat’s GX network. We will continue to offer other solutions to our customers as we have in the past. We will continue to evaluate and make available the best service options for our customers’ telecommunication needs.

On May 18, 2017, we completed our acquisition of Cyphre Security Solutions (Cyphre) for an estimated aggregate purchase price of $12.0 million. Of this aggregate purchase price, we paid $4.9 million in cash, $3.3 million in stock and expect to pay $3.8 million of contingent consideration for intellectual property, estimated as of the date of acquisition. The initial estimate of the contingent consideration for intellectual property is preliminary and remains subject to change based on certain post-closing contractual options under the acquisition agreement. Cyphre is a cybersecurity company that provides advanced enterprise data protection leveraging BlackTIE ® hardware-based encryption featuring low latency protection for files at rest and in transit for both public and private cloud. Cyphre is based in Texas.

In January 2017, we signed and announced an eight-year lease for new headquarters space, comprised of 28,808 square feet located at 15115 Park Row Blvd, Suite 300, Houston, Texas. The term of this lease runs through June 2025.

Known Trends and Uncertainties

Operating Matters

Uncertainties in the oil and gas industry may continue to impact our profitability. The fundamentals of the oil and gas industry we serve remain challenged into 2017, particularly offshore. Oil prices declined significantly throughout 2015 and into 2016 from the highs in mid-year 2014 due to lower-than-expected global oil demand growth, increased supply from U.S. unconventional sources and increased production from several international countries. Although oil prices and U.S. onshore drilling rig counts have increased since their 2016 lows, the oil and gas environment continues to be challenged with operators focusing on shorter term, land-based projects that generally require less capital investment. Generally, a prolonged lower oil price environment decreases exploration and development drilling investment, utilization of drilling rigs and the activity of the global oil and gas industry that we serve. Several global exploration and production companies reduced their capital spending budgets, including the cancellation or deferral of existing programs, and are expected to continue operating under reduced budgets in the current commodity price environment.

 

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Table of Contents

For the periods referenced below, we were billing on the following sites listed in the table below:

 

     3rd Quarter      2nd Quarter      1st Quarter      4th Quarter      3rd Quarter  
     2017      2017      2017      2016      2016  

Selected Operational Data:

              

Offshore drilling rigs (1)

     184        173        173        175        194  

Offshore Production

     316        296        290        280        287  

Maritime

     165        134        124        122        128  

International Land

     132        112        104        104        101  

Other sites (2)

     378        336        304        240        238  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,175        1,051        995        921        948  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes jack up, semi-submersible and drillship rigs
(2) Includes U.S. onshore drilling and production sites, completion sites, man-camps, remote offices, and supply bases and offshore-related supply bases, shore offices, tender rigs and platform rigs

In addition, uncertainties that could impact our profitability include service responsiveness to remote locations, communication network complexities, political and economic instability in certain regions, cyber-attacks, export restrictions, licenses and other trade barriers. These uncertainties may result in the delay of service initiation, which may negatively impact our results of operations. Additional uncertainties that could impact our operating cash flows include the availability and cost of satellite bandwidth, timing of collecting our receivables, and our ability to increase our contracted services through sales and marketing efforts while leveraging the contracted satellite and other communication service costs.

Sales Tax Audit

We are undergoing a routine sales tax audit in a state where we have operations for the period from August of 2011 to May of 2015. It is expected that the audit and the appeals process, if necessary, will be completed within the next three months. We do not believe that the outcome of the audit will result in a material impact to the consolidated financial statements.

Global Xpress (GX) Dispute

We are in a dispute with Inmarsat relating to a January 2014 take or pay agreement to purchase up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years. We are attempting to resolve the dispute through a contractually-stipulated arbitration process that began in October 2016. The parties dispute whether Inmarsat has met its contractual obligations with respect to the service under the agreement. In July 2017, pursuant to our contractual rights under the agreement, we delivered a notice of termination of the agreement to Inmarsat.

We have incurred legal expenses of $0.8 million in connection with the GX dispute for the nine months ended September 30, 2017. We may continue to incur significant legal fees, related expenses and management time in the future. We cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.

Based on the information available at this time and our understanding of the GX dispute, we do not deem the likelihood of a material loss related to this dispute to be probable, so we have not accrued any liability related to the dispute. At this stage of the arbitration, the range of possible loss is not reasonably estimable, but could range from zero to the maximum amount payable under the contract for the services plus expenses.

 

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Table of Contents

Results of Operations

The following table sets forth selected financial and operating data for the periods indicated.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2017      2016      2017      2016  
     (in thousands)  

Revenue

   $ 50,844      $ 50,612      $ 148,078      $ 167,864  
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses:

           

Cost of revenue (excluding depreciation and amortization)

     32,385        29,860        95,298        99,412  

Depreciation and amortization

     7,999        8,305        22,867        25,561  

Impairment of intangible assets

     —          —          —          397  

Selling and marketing

     2,400        1,724        5,968        5,559  

General and administrative

     11,011        10,476        31,401        39,393  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     53,795        50,365        155,534        170,322  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income (loss)

     (2,951      247        (7,456      (2,458

Other expense, net

     (480      (1,155      (1,859      (2,437
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (3,431      (908      (9,315      (4,895

Income tax expense

     (762      (540      (1,075      (2,676
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (4,193      (1,448      (10,390      (7,571

Less: Net income attributable to non-controlling interest

     39        210        117        171  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to RigNet, Inc. stockholders

   $ (4,232    $ (1,658    $ (10,507    $ (7,742
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Non-GAAP Data:

           

Unlevered Free Cash Flow

   $ 1,990      $ 6,598      $ 7,197      $ 16,313  

Adjusted EBITDA

   $ 7,843      $ 8,534      $ 21,121      $ 27,824  

 

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The following represents selected financial operating results for our segments:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2017      2016      2017      2016  
     (in thousands)  

Managed Services:

           

Revenue

   $ 40,243      $ 45,653      $ 122,531      $ 146,766  

Cost of revenue (excluding depreciation and amortization)

     24,902        26,253        75,798        85,455  

Depreciation and amortization

     5,263        6,716        17,509        20,032  

Selling, general and administrative

     3,013        5,235        12,435        20,631  
  

 

 

    

 

 

    

 

 

    

 

 

 

Managed Services operating income

   $ 7,065      $ 7,449      $ 16,789      $ 20,648  
  

 

 

    

 

 

    

 

 

    

 

 

 

Applications and Internet-of-Things:

 

        

Revenue

   $ 4,985      $ 1,552      $ 9,846      $ 5,079  

Cost of revenue (excluding depreciation and amortization)

     3,394        696        6,844        2,176  

Depreciation and amortization

     835        —          849        —    

Selling, general and administrative

     363        67        1,149        201  
  

 

 

    

 

 

    

 

 

    

 

 

 

Applications & Internet-of-Things operating income

   $ 393      $ 789      $ 1,004      $ 2,702  
  

 

 

    

 

 

    

 

 

    

 

 

 

Systems Integration:

           

Revenue

   $ 5,616      $ 3,407      $ 15,701      $ 16,019  

Cost of revenue (excluding depreciation and amortization)

     4,089        2,911        12,656        11,781  

Depreciation and amortization

     615        631        1,813        2,127  

Selling, general and administrative

     280        499        1,179        2,141  
  

 

 

    

 

 

    

 

 

    

 

 

 

Systems Integration and Automation operating income (loss)

   $ 632      $ (634    $ 53      $ (30
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE: Consolidated balances include the segments above along with corporate activities and intercompany eliminations.

Three Months Ended September 30, 2017 and 2016

Revenue. Revenue increased by $0.2 million, or 0.5%, to $50.8 million for the three months ended September 30, 2017 from $50.6 million for the three months ended September 30, 2016. This increase was driven by increased revenues in the Apps & IoT and Systems Integration segments, partially offset by lower revenue in the Managed Services segment. The Apps & IoT segment increased $3.4 million, or 221.2%, due to our growth strategy which focuses on growth into the application layer and IoT space including the acquisition of ESS, which contributed $1.3 million. The Systems Integration segment increased $2.2 million, or 64.8%, due to the timing of Systems Integration projects. The Managed Services segment decreased $5.4 million, or 11.9%, primarily due to decreased offshore drilling sites served and decreased revenue-per-site from offshore drilling rigs partially offset by $1.1 million from the acquisition of DTS. The decrease of 10 offshore drilling sites served was primarily due to offshore drilling rigs we previously served being cold-stacked or scrapped partially offset by new sales wins. The decreased revenue-per-site from offshore drilling rigs is primarily due to decreased multi-tenancy ratios from operators on offshore drilling rigs. As rigs that we serve hot-stack (when a rig is taken out of service but is ready to mobilize on short notice) due to the current economic environment, the opportunity to serve the operator and earn additional revenue is lost until the drilling rig is subsequently contracted for service. Revenue continues to be impacted by previously announced reductions in offshore drilling.

Cost of Revenue (excluding depreciation and amortization). Cost of revenue (excluding depreciation and amortization) increased by $2.5 million, or 8.5%, to $32.4 million for the three months ended September 30, 2017 from $29.9 million for the three months ended September 30, 2016. Cost of revenue increased in the Apps & IoT segment by $2.7 million as we invest in our strategy of expanding into the application layer and IoT space including the acquisition of ESS and Cyphre. Cost of revenue increased in the Systems Integration segment by $1.2 million due to the timing of Systems Integration projects. Cost of revenue (excluding depreciation and amortization) decreased in the Managed Services segment by $1.4 million primarily due to reductions in ongoing expenses partially offset by the acquisition of DTS.

 

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Depreciation and Amortization. Depreciation and amortization expense decreased by $0.3 million to $8.0 million for the three months ended September 30, 2017 from $8.3 million for the three months ended September 30, 2016. The decrease is primarily attributable to lower levels of capital expenditures in recent years, partially offset by the recent acquisitions of Cyphre, DTS and ESS.

Selling and Marketing. Selling and marketing expense increased $0.7 million to $2.4 million for the three months ended September 30, 2017 from $1.7 million for the three months ended September 30, 2016. This increase was due to investing in our growth strategy.

General and Administrative. General and administrative expenses increased by $0.5 million to $11.0 million for the three months ended September 30, 2017 from $10.5 million for the three months ended September 30, 2016. General and administrative costs increased due to the acquisition of Cyphre and ESS and related acquisition costs in the Apps & IoT segment. General and administrative costs decreased in the Managed Services and Systems Integration segments due to reductions in ongoing expenses partially offset by the acquisition of DTS.

Income Tax Expense. Our effective income tax rate was (22.2%) and (59.5%) for the three months ended September 30, 2017 and 2016, respectively. Our effective tax rate is affected by factors including changes in valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

Nine months Ended September 30, 2017 and 2016

Revenue. Revenue decreased by $19.8 million, or 11.8%, to $148.1 million for the nine months ended September 30, 2017 from $167.9 million for the nine months ended September 30, 2016. This decrease was driven by lower revenues across the Managed Services and Systems Integration segments, partially offset by an increase in the Apps & IoT segment. The Managed Services segment decreased $24.2 million, or 16.5%, primarily due to decreased offshore drilling sites served and decreased revenue-per-site from offshore drilling rigs partially offset by $1.1 million from the acquisition of DTS. The decrease of 10 offshore drilling sites served was primarily due to offshore drilling rigs we previously served being cold-stacked or scrapped partially offset by new sales wins. The decreased revenue-per-site from offshore drilling rigs is primarily due to decreased multi-tenancy ratios from operators on offshore drilling rigs. As rigs that we serve hot-stack (when a rig is taken out of service but is ready to mobilize on short notice) due to the current economic environment, the opportunity to serve the operator and earn additional revenue is lost until the drilling rig is subsequently contracted for service. Revenue continues to be impacted by previously announced reductions in offshore drilling. The Systems Integration segment decreased $0.3 million, or 2.0%, due to the timing of Systems Integration projects. The Apps & IoT segment increased $4.8 million, or 93.9%, due to our growth strategy which focuses on growth into the application layer and IoT space including the acquisition of ESS, which contributed $1.3 million.

Cost of Revenue (excluding depreciation and amortization). Cost of revenue (excluding depreciation and amortization) decreased by $4.1 million, or 4.1%, to $95.3 million for the nine months ended September 30, 2017 from $99.4 million for the nine months ended September 30, 2016. Cost of revenue (excluding depreciation and amortization) decreased in the Managed Services segment by $9.7 million primarily due to reductions in ongoing expenses partially offset by the acquisition of DTS. Cost of revenue increased in the Systems Integration segment by $0.9 million due to the timing of Systems Integration projects. Cost of revenue increased in the Apps & IoT segment by $4.7 million as we invest in our strategy of expanding into the application layer and internet-of-things space including the acquisition of ESS and Cyphre.

Depreciation and Amortization. Depreciation and amortization expense decreased by $2.7 million to $22.9 million for the nine months ended September 30, 2017 from $25.6 million for the nine months ended September 30, 2016. The decrease is primarily attributable to lower levels of capital expenditures in recent years.

Impairment of Intangible Assets. We recognized $0.4 million in impairment for the nine months ended September 30, 2016. In June 2016, we identified a triggering event for a license in Kazakhstan associated with a decline in cash flow projections. In June 2016, we conducted an intangibles impairment test and as a result of such test, recognized a $0.4 million impairment of licenses in the Corporate segment, which was the full amount of intangibles within Kazakhstan.

Selling and Marketing. Selling and marketing expense increased $0.4 million to $6.0 million for the nine months ended September 30, 2017 from $5.6 million for the nine months ended September 30, 2016. This increase was due to investing in our growth strategy.

General and Administrative. General and administrative expenses decreased by $8.0 million to $31.4 million for the nine months ended September 30, 2017 from $39.4 million for the nine months ended September 30, 2016. General and administrative costs decreased in the Managed Services and Systems Integration segments due to reductions in ongoing expenses partially offset by the acquisition of DTS. General and administrative costs increased in the Apps & IoT segment due to the acquisition of Cyphre and ESS and related acquisition costs.

 

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Income Tax Expense. Our effective income tax rate was (11.5%) and (54.7%) for the nine months ended September 30, 2017 and 2016, respectively. Our effective tax rate is affected by factors including changes in valuation allowances, fluctuations in income across jurisdictions with varying tax rates, and changes in income tax reserves, including related penalties and interest.

Liquidity and Capital Resources

At September 30, 2017, we had working capital, including cash, of $44.8 million.

Based on our current expectations, we believe our liquidity and capital resources will be sufficient for the conduct of our business and operations for the foreseeable future. We may also use a portion of our available cash to finance growth through the acquisition of, or investment in, businesses, products, services or technologies complementary to our current business, through mergers, acquisitions, joint ventures or otherwise, or to pay down outstanding debt.

During the next twelve months, we expect our principal sources of liquidity to be cash flows from operating activities, cash and cash equivalents on hand and availability under our credit facility. In forecasting our cash flows we have considered factors including contracted services related to long-term deepwater drilling programs, U.S. land rig count trends, projected oil and natural gas prices, and contracted and available satellite bandwidth.

While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional expansion opportunities within the next year which could require additional financing, either debt or equity.

Beyond the next twelve months, we expect our principal sources of liquidity to be cash flows provided by operating activities, cash and cash equivalents on hand, availability under our credit facility and additional financing activities we may pursue, which may include debt or equity offerings.

 

     Nine Months Ended
September 30,
 
     2017      2016  
     (in thousands)  

Condensed Consolidated Statements of Cash Flows Data:

     

Cash and cash equivalents, January 1,

   $ 57,152      $ 60,468  

Net cash provided by operating activities

     20,888        22,754  

Net cash used in investing activities

     (45,007      (16,886

Net cash used in financing activities

     (1,052      (8,111

Changes in foreign currency translation

     919        (986
  

 

 

    

 

 

 

Cash and cash equivalents, September 30,

   $ 32,900      $ 57,239  
  

 

 

    

 

 

 

Currently, the Norwegian kroner and the British pound sterling are the foreign currencies that could materially impact our liquidity. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. During the nine months ended September 30, 2017 and 2016, 90.2% and 84.6% of our revenue was denominated in U.S. dollars, respectively.

Operating Activities

Net cash provided by operating activities was $20.9 million for the nine months ended September 30, 2017 compared to $22.8 million for the nine months ended September 30, 2016. The decrease in cash provided by operating activities during 2017 of $1.9 million was primarily due to decreased operating activity.

Our cash provided by operations is subject to many variables, the most significant of which is the volatility of the oil and gas industry and, therefore, the demand for our services. Other factors impacting operating cash flows include the availability and cost of satellite bandwidth, as well as the timing of collecting our receivables. Our future cash flow from operations will depend on our ability to increase our contracted services through our sales and marketing efforts while leveraging our contracted satellite and other communication service costs.

 

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Investing Activities

Net cash used in investing activities was $45.0 million and $16.9 million for the nine months ended September 30, 2017 and 2016, respectively.

Net Cash used in investing activities during the nine months ended September 30, 2017 included $32.2 million paid in connection with acquisitions consisting of $4.9 million for Cyphre, $5.1 million for DTS and $22.2 million for ESS. Net Cash used in investing activities during the nine months ended September 30, 2016 included $4.8 million paid for the acquisition of TECNOR. Net cash used in investing activities during the nine months ended September 30, 2017 and 2016 includes capital expenditures of $13.2 million and $11.2 million, respectively. We expect capital expenditures for 2017 to continue to be low due to continued reduced levels of global offshore oil and gas drilling activity.

Financing Activities

Net cash used in financing activities was $1.1 million and $8.1 million for the nine months ended September 30, 2017 and 2016, respectively. Cash used in financing activities for the nine months ended September 30, 2017 included $16.7 million in principal payments on our long-term debt partially offset by draws of $15.0 million on our revolving credit facility. Cash used in financing activities for the nine months ended September 30, 2016 included $9.4 million in principal payments on our long-term debt.

Credit Agreement

As of September 30, 2017, the Company has a $60.0 million term loan (Term Loan) and a $75.0 million Revolving Credit Facility (RCF), which includes a $15 million sublimit for the issuance of standby letters of credit.

The Term Loan bears an interest rate of LIBOR plus a margin ranging from 1.5% to 2.5%, based on a ratio of funded debt to Consolidated EBITDA, a non-GAAP financial measure defined in the credit agreement. Interest is payable monthly along with quarterly principal installments of $2.1 million, with the balance due October 2018. The weighted average interest rate for the three months ended September 30, 2017 and 2016 was 3.2% and 2.5%, respectively. The weighted average interest rate for the nine months ended September 30, 2017 and 2016 was 3.1% and 2.4%, respectively, with an interest rate of 3.2% at September 30, 2017. The Term Loan is secured by substantially all the assets of the Company. As of September 30, 2017, the outstanding principal balance of the Term Loan was $27.9 million.

The RCF matures in October 2018 with any outstanding borrowings then payable. Borrowings under the RCF carry an interest rate of LIBOR plus an applicable margin ranging from 1.5% to 2.5%, which varies as a function of the Company’s leverage ratio. As of September 30, 2017, $32.0 million in draws on the facility remain outstanding. The weighted average interest rate for the three months ended September 30, 2017 and 2016 was 3.2% and 2.5%, respectively. The weighted average interest rate for the nine months ended September 30, 2017 and 2016 was 3.1% and 2.4%, respectively, with an interest rate of 3.2% at September 30, 2017.

As of September 30, 2017, there were $6.3 million in standby letters of credit issued, which reduces our availability under the RCF.

In February 2016, we amended our credit agreement with the most significant changes being the definition of Consolidated EBITDA, the calculation of the fixed charge coverage ratio and the timing associated with delivery of financial statements and compliance certificates to the administrative agent.

In December 2016, we amended our credit agreement with the most significant changes being voluntarily reducing RCF from $125 million to $75 million and changing the definition of Consolidated EBITDA and certain other definitions contained in the credit agreement.

Our credit agreement imposes certain restrictions including limitations on our ability to obtain additional debt financing and on our payment of cash dividends. It also requires us to maintain certain financial covenants such as a funded debt to Consolidated EBITDA ratio of less than or equal to 2.5 to 1.0 and a fixed charge coverage ratio of not less than 1.25 to 1.0. At September 30, 2017, we believe we were in compliance with all covenants.

 

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On November 6, 2017, we entered into our third amended and restated credit agreement, which provides for a $15.0 million term loan facility and an $85.0 million revolving credit facility that matures on November 6, 2020 with interest payable monthly at a rate of LIBOR plus a margin ranging from 1.75% to 2.75% based on a consolidated leverage ratio and principal payments of $1.25 million due quarterly beginning March 31, 2018.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet arrangements.

Non-GAAP Measures

Adjusted EBITDA and Unlevered Free Cash Flow should not be considered as alternatives to net loss, operating income (loss), basic or diluted earnings per share or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA and Unlevered Free Cash Flow may not be comparable to similarly titled measures of other companies because other companies may not calculate Adjusted EBITDA, Unlevered Free Cash Flow or similarly titled measures in the same manner as we do. We prepare Adjusted EBITDA and Unlevered Free Cash Flow to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons we consider them appropriate.

We define Adjusted EBITDA as net loss plus interest expense, income tax expense, depreciation and amortization, impairment of goodwill, intangibles, property, plant and equipment, foreign exchange impact of intercompany financing activities, (gain) loss on retirement of property, plant and equipment, change in fair value of earn-outs and contingent consideration, stock-based compensation, merger and acquisition costs, executive departure costs, restructuring charges and non-recurring items.

We believe Adjusted EBITDA is useful to investors in evaluating our operating performance for the following reasons:

 

    Investors and securities analysts use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies, and we understand our investor and analyst’s presentations include Adjusted EBITDA;

 

    By comparing our Adjusted EBITDA in different periods, our investors may evaluate our operating results without the additional variations caused by items that we do not consider indicative of our core operating performance and which are not necessarily comparable from year to year; and

 

    Adjusted EBITDA is an integral component of Consolidated EBITDA, as defined and used in the financial covenant ratios in the credit agreement.

Our management uses Adjusted EBITDA:

 

    To indicate profit contribution;

 

    For planning purposes, including the preparation of our annual operating budget and as a key element of annual incentive programs;

 

    To allocate resources to enhance the financial performance of our business; and

 

    In communications with our Board of Directors concerning our financial performance.

Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under GAAP. Some of these limitations are:

 

    Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or other contractual commitments;

 

    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

    Adjusted EBITDA does not reflect interest expense;

 

    Adjusted EBITDA does not reflect cash requirements for income taxes;

 

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    Adjusted EBITDA does not reflect impairment of goodwill, intangibles, property, plant and equipment;

 

    Adjusted EBITDA does not reflect foreign exchange impact of intercompany financing activities;

 

    Adjusted EBITDA does not reflect (gain) loss on retirement of property, plant and equipment;

 

    Adjusted EBITDA does not reflect the stock based compensation component of employee compensation;

 

    Adjusted EBITDA does not reflect acquisition costs;

 

    Adjusted EBITDA does not reflect change in fair value of earn-outs and contingent consideration;

 

    Adjusted EBITDA does not reflect executive departure costs;

 

    Adjusted EBITDA does not reflect restructuring charges;

 

    Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; and

 

    Other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting its usefulness as a comparative measure.

We define Unlevered Free Cash Flow as Adjusted EBITDA less capital expenditures. We believe Unlevered Free Cash Flow is useful to investors in evaluating our operating performance for the following reasons:

 

    Investors and securities analysts use Unlevered Free Cash Flow as a supplemental measure to evaluate the overall operating performance of companies, and we understand our investor and analyst’s presentations include Unlevered Free Cash Flow; and

 

    By comparing our Unlevered Free Cash Flow in different periods, our investors may evaluate our operating results without the additional variations caused by items that we do not consider indicative of our core operating performance and which are not necessarily comparable from year to year.

Although Unlevered Free Cash Flow is frequently used by investors and securities analysts in their evaluations of companies, Unlevered Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under GAAP. Some of these limitations are:

 

    Unlevered Free Cash Flow does not reflect changes in, or cash requirements for, our working capital needs;

 

    Unlevered Free Cash Flow does not reflect interest expense;

 

    Unlevered Free Cash Flow does not reflect cash requirements for income taxes;

 

    Unlevered Free Cash Flow does not reflect impairment of goodwill, intangibles, property, plant and equipment;

 

    Unlevered Free Cash Flow does not reflect foreign exchange impact of intercompany financing activities;

 

    Unlevered Free Cash Flow does not reflect (gain) loss on retirement of property, plant and equipment;

 

    Unlevered Free Cash Flow does not reflect acquisition costs;

 

    Unlevered Free Cash Flow does not reflect change in fair value of earn-outs and contingent consideration;

 

    Unlevered Free Cash Flow does not reflect executive departure costs;

 

    Unlevered Free Cash Flow does not reflect restructuring charges;

 

    Unlevered Free Cash Flow does not reflect depreciation and amortization;

 

    Unlevered Free Cash Flow does not reflect the stock based compensation component of employee compensation; and

 

    Other companies in our industry may calculate Unlevered Free Cash Flow or similarly titled measures differently than we do, limiting its usefulness as a comparative measure.

 

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The following table presents a reconciliation of our net loss to Adjusted EBITDA and Unlevered Free Cash Flow.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2017      2016      2017      2016  
     (in thousands)  

Net loss

   $ (4,193    $ (1,448    $ (10,390    $ (7,571

Interest expense

     689        729        1,921        2,040  

Depreciation and amortization

     7,999        8,305        22,867        25,561  

Impairment of intangible assets

     —          —          —          397  

(Gain) loss on sales of property, plant and equipment, net of retirements

     5        (14      55        (164

Stock-based compensation

     1,007        866        2,949        2,708  

Restructuring

     767        835        767        1,332  

Change in fair value of earn-out/contingent consideration

     —          (1,279      (846      (1,279

Executive departure costs

     —          —          —          1,884  

Acquisition costs

     807        —          2,723        240  

Income tax expense

     762        540        1,075        2,676  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (non-GAAP measure)

   $ 7,843      $ 8,534      $ 21,121      $ 27,824  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (non-GAAP measure)

   $ 7,843      $ 8,534      $ 21,121      $ 27,824  

Capital expenditures

     5,853        1,936        13,924        11,511  
  

 

 

    

 

 

    

 

 

    

 

 

 

Unlevered Free Cash Flow (non-GAAP measure)

   $ 1,990      $ 6,598      $ 7,197      $ 16,313  
  

 

 

    

 

 

    

 

 

    

 

 

 

We evaluate Adjusted EBITDA and Unlevered Free Cash Flow generated from our operations to assess the potential recovery of historical capital expenditures, determine timing and investment levels for growth opportunities, extend commitments of satellite bandwidth cost, invest in new products and services, expand or open new offices and service centers, and assist purchasing synergies.

Adjusted EBITDA decreased by $0.7 million to $7.8 million for the three months ended September 30, 2017, from $8.5 million for the three months ended September 30, 2016. The decrease resulted primarily from increased costs partially offset by increased revenue. Adjusted EBITDA decreased by $6.7 million to $21.1 million for the nine months ended September 30, 2017, from $27.8 million for the nine months ended September 30, 2016. The decrease resulted primarily from lower revenue partially offset by a reduction in ongoing operating expenses.

Unlevered Free Cash Flow was $2.0 million in the three months ended September 30, 2017, a decrease of $4.6 million over the prior year quarter. Unlevered Free Cash Flow was $7.2 million in the nine months ended September 30, 2017, a decrease of $9.1 million over the prior year period. The decrease in Unlevered Free Cash Flow was due to decreased Adjusted EBITDA and increased capital expenditures.

 

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Item 3. Quantitative and Q ualitative Disclosures about Market Risk

We are subject to a variety of risks, including foreign currency exchange rate fluctuations relating to foreign operations and certain purchases from foreign vendors. In the normal course of business, we assess these risks and have established policies and procedures to manage our exposure to fluctuations in foreign currency values.

Our objective in managing our exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations in earnings and cash flows associated with foreign currency exchange rates. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. During the nine months ended September 30, 2017 and 2016, 9.8% and 15.4%, respectively of our revenues were earned in non-U.S. currencies. At September 30, 2017 and 2016, we had no significant outstanding foreign exchange contracts.

Our results of operations and cash flows are subject to fluctuations due to changes in interest rates primarily from our variable interest rate long-term debt. We presently do not hedge these risks, but evaluate financial risk on a regular basis and may utilize financial instruments in the future if deemed necessary. The following analysis reflects the annual impacts of potential changes in our interest rate to net loss attributable to us and our total stockholders’ equity based on our outstanding long-term debt on September 30, 2017 and December 31, 2016, assuming those liabilities were outstanding for the previous twelve months:

 

     September 30,      December 31,  
     2017      2016  
     (in thousands)  

Effect on Net Income (Loss) and Equity - Increase/Decrease:

     

1% Decrease/increase in rate

   $ 600      $ 615  

2% Decrease/increase in rate

   $ 1,200      $ 1,229  

3% Decrease/increase in rate

   $ 1,800      $ 1,844  

 

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

35


Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

In August 2017, the Company filed litigation in Harris County District Court and arbitration against one of its former Chief Executive Officers for, among other things, breach of fiduciary duty, misappropriation of trade secrets, unfair competition and breach of contract. The Company is seeking repayment of certain severance benefits and injunctive relief. The Company has incurred legal expense of approximately $0.3 million in connection with this dispute for the nine months ended September 30, 2017. The Company may continue to incur significant legal fees, related expenses and management time in the future. The Company cannot predict the ultimate outcome of this dispute, the total costs to be incurred or the potential impact on personnel.

Inmarsat and the Company are in a dispute relating to a January 2014 take or pay agreement to purchase up to $65.0 million, under certain conditions, of GX capacity from Inmarsat over several years. The parties are attempting to resolve the dispute through a contractually-stipulated arbitration process with the International Centre for Dispute Resolution that began in October 2016. The parties dispute whether Inmarsat has met its contractual obligations with respect to the service under the agreement. In July 2017, pursuant to its contractual rights under the agreement, the Company delivered a notice of termination of the agreement to Inmarsat.

The Company has incurred legal expenses of $0.8 million in connection with the GX dispute for the nine months ended September 30, 2017. The Company may continue to incur significant legal fees, related expenses and management time in the future. The Company cannot predict the ultimate outcome of the GX dispute, the total costs to be incurred or the potential impact on personnel.

Based on the information available at this time and management’s understanding of the GX dispute, the Company does not deem the likelihood of a material loss related to this dispute to be probable, so it has not accrued any liability related to the dispute. At this stage of the arbitration, the range of possible loss is not reasonably estimable, but could range from zero to the maximum amount payable under the contract for the services plus expenses.

The Company, in the ordinary course of business, is a claimant or a defendant in various other legal proceedings, including proceedings as to which the Company has insurance coverage and those that may involve the filing of liens against the Company or its assets.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

The exhibits required to be filed with this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.

 

36


Table of Contents
INDEX TO EXHIBITS
    2.2    Share Purchase Agreement between RigNet, Inc. and the shareholders of Orgtec S.A.P.I. de C.V., d.b.a. TECNOR dated November  3, 2015 (filed as Exhibit 2.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 9, 2016, and incorporated herein by reference)
    3.1    Amended and Restated Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference)
    3.2    Amendment to Amended and Restated Certificate of Incorporation, effective May  18, 2016. (filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference)
    3.3    Amended and Restated Bylaws of the Registrant, as amended (filed as Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2016, and incorporated herein by reference)
    3.4    Amendment to the Amended and Restated Bylaws of RigNet, Inc., effective May  18, 2016 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 24, 2016, and incorporated herein by reference)
  10.1+    Consulting Services Agreement between the Registrant and William Sutton dated July  13, 2017 (filed as Exhibit 10.1+ to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2017, and incorporated herein by reference)
  10.2    Third Amended and Restated Credit Agreement dated as of November 6, 2017 among RigNet, Inc. as Borrower, the Subsidiaries of RigNet party thereto as Guarantors, Bank of America, N.A. as Administrative Agent, Swingline Lender and L/C Issuer, Compass Bank, as Syndication Agent, the Lenders party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and Sole Bookrunner.
  31.1    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  32.2    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document
101.SCH    XBRL Schema Document
101.CAL    XBRL Calculation Linkbase Document
101.LAB    XBRL Label Linkbase Document
101.PRE    XBRL Presentation Linkbase Document
101.DEF    XBRL Definition Linkbase Document

 

+ Indicates management contract or compensatory plan.

 

37


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    RIGNET, INC.
Date: November 6, 2017   By:  

/s/ CHARLES E. SCHNEIDER

    Charles E. Schneider
   

Senior Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

 

38

Exhibit 10.2

Execution Version

 

 

 

Published CUSIP Number: Deal: 76658HAD9

Revolver: 76658HAE7

Term Loan: 76658HAF4

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of November 6, 2017

among

RIGNET, INC.,

as Borrower,

THE SUBSIDIARIES OF THE BORROWER PARTY HERETO,

as Guarantors,

BANK OF AMERICA, N.A.,

as Administrative Agent, Swingline Lender and

L/C Issuer,

BBVA COMPASS,

as Syndication Agent,

and

THE LENDERS PARTY HERETO

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

as Sole Lead Arranger and Sole Bookrunner

 

 

 

 


TABLE OF CONTENTS

 

     Page  

Article I DEFINITIONS AND ACCOUNTING TERMS

     1  

1.01

  Defined Terms      1  

1.02

  Other Interpretive Provisions      33  

1.03

  Accounting Terms      34  

1.04

  Rounding      34  

1.05

  Times of Day      34  

1.06

  Rates      34  

1.07

  Letter of Credit Amounts      34  

1.08

  UCC Terms      35  

1.09

  Timing of Payment or Performance      35  

1.10

  Exchange Rates; Currency Equivalents      35  

1.11

  Additional Alternative Currencies      35  

1.12

  Change of Currency      36  

Article II COMMITMENTS AND CREDIT EXTENSIONS

     37  

2.01

  Loans      37  

2.02

  Borrowings, Conversions and Continuations of Loans      38  

2.03

  Letters of Credit      39  

2.04

  Swingline Loans      48  

2.05

  Prepayments      51  

2.06

  Termination or Reduction of Commitments      52  

2.07

  Repayment of Loans      53  

2.08

  Interest and Default Rate      53  

2.09

  Fees      54  

2.10

  Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate      55  

2.11

  Evidence of Debt      55  

2.12

  Payments Generally; Administrative Agent’s Clawback      56  

2.13

  Sharing of Payments by Lenders      58  

2.14

  Cash Collateral          58  

 

ii


2.15

  Defaulting Lenders      59  

2.16

  Increase in Revolving Facility      61  

Article III TAXES, YIELD PROTECTION AND ILLEGALITY

     63  

3.01

  Taxes      63  

3.02

  Illegality      67  

3.03

  Inability to Determine Rates      68  

3.04

  Increased Costs; Reserves on Eurodollar Rate Loans      69  

3.05

  Compensation for Losses      70  

3.06

  Mitigation Obligations; Replacement of Lenders      70  

3.07

  Survival      71  

Article IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

     71  

4.01

  Conditions of Initial Credit Extension      71  

4.02

  Conditions to all Credit Extensions      73  

Article V REPRESENTATIONS AND WARRANTIES

     73  

5.01

  Existence, Qualification and Power      73  

5.02

  Authorization; No Contravention      74  

5.03

  Governmental Authorization; Other Consents      74  

5.04

  Binding Effect      74  

5.05

  Financial Statements; No Material Adverse Effect      74  

5.06

  Litigation      75  

5.07

  No Default      75  

5.08

  Ownership of Property; Liens      75  

5.09

  Environmental Compliance      75  

5.10

  Insurance      76  

5.11

  Taxes      76  

5.12

  ERISA Compliance      76  

5.13

  Margin Regulations; Investment Company Act      77  

5.14

  Disclosure      77  

5.15

  Compliance with Laws      77  

5.16

  Solvency      78  

5.17

  Casualty, Etc.          78  

 

iii


5.18

  OFAC      78  

5.19

  [Intentionally Omitted]      78  

5.20

  Subsidiaries; Equity Interests; Loan Parties      78  

5.21

  Intellectual Property; Licenses, Etc.      78  

5.22

  EEA Financial Institutions      79  

Article VI AFFIRMATIVE COVENANTS

     79  

6.01

  Financial Statements      79  

6.02

  Certificates; Other Information      80  

6.03

  Notices      81  

6.04

  Payment of Obligations      82  

6.05

  Preservation of Existence, Etc.      82  

6.06

  Maintenance of Properties      82  

6.07

  Maintenance of Insurance      82  

6.08

  Compliance with Laws      83  

6.09

  Books and Records      83  

6.10

  Inspection Rights      83  

6.11

  Use of Proceeds      84  

6.12

  Additional Guarantors; Pledge of Equity of Foreign Subsidiaries      84  

6.13

  Covenant to Give Security      84  

6.14

  Principal Depository      85  

6.15

  Further Assurances      85  

6.16

  Keepwell Requirements      85  

Article VII NEGATIVE COVENANTS

     86  

7.01

  Liens      86  

7.02

  Indebtedness      88  

7.03

  Investments      89  

7.04

  Fundamental Changes      91  

7.05

  Dispositions      91  

7.06

  Restricted Payments      92  

7.07

  Change in Nature of Business      93  

7.08

  Transactions with Affiliates          93  

 

iv


7.09

  Burdensome Agreements      93  

7.10

  Use of Proceeds      94  

7.11

  Financial Covenants      94  

7.12

  Fiscal Year and Accounting Changes      94  

7.13

  Sale and Leaseback Transactions      94  

7.14

  Sanctions      95  

Article VIII EVENTS OF DEFAULT AND REMEDIES

     95  

8.01

  Events of Default      95  

8.02

  Remedies Upon Event of Default      97  

8.03

  Application of Funds      97  

Article IX ADMINISTRATIVE AGENT

     98  

9.01

  Appointment and Authority      98  

9.02

  Rights as a Lender      99  

9.03

  Exculpatory Provisions      99  

9.04

  Reliance by Administrative Agent      100  

9.05

  Delegation of Duties      100  

9.06

  Resignation of Administrative Agent      101  

9.07

  Non-Reliance on Administrative Agent and Other Lenders      102  

9.08

  No Other Duties, Etc.      102  

9.09

  Administrative Agent May File Proofs of Claim; Credit Bidding      102  

9.10

  Collateral and Guaranty Matters      103  

9.11

  Secured Cash Management Agreements and Secured Hedge Agreements      104  

Article X CONTINUING GUARANTY

     104  

10.01

  Guaranty      104  

10.02

  Rights of Lenders      105  

10.03

  Certain Waivers      105  

10.04

  Obligations Independent      105  

10.05

  Subrogation      105  

10.06

  Termination; Reinstatement      106  

10.07

  Stay of Acceleration      106  

10.08

  Condition of Borrower          106  

 

v


10.09

  Appointment of Borrower      106  

10.10

  Right of Contribution      106  

Article XI MISCELLANEOUS

     107  

11.01

  Amendments, Etc.      107  

11.02

  Notices; Effectiveness; Electronic Communications      109  

11.03

  No Waiver; Cumulative Remedies; Enforcement      111  

11.04

  Expenses; Indemnity; Damage Waiver      111  

11.05

  Payments Set Aside      113  

11.06

  Successors and Assigns      113  

11.07

  Treatment of Certain Information; Confidentiality      117  

11.08

  Right of Setoff      118  

11.09

  Interest Rate Limitation      119  

11.10

  Counterparts; Integration; Effectiveness      119  

11.11

  Survival of Representations and Warranties      120  

11.12

  Severability      120  

11.13

  Replacement of Lenders      120  

11.14

  Governing Law; Jurisdiction; Etc.      121  

11.15

  Waiver of Jury Trial      122  

11.16

  Subordination      122  

11.17

  No Advisory or Fiduciary Responsibility      122  

11.18

  Electronic Execution      123  

11.19

  USA PATRIOT Act Notice      123  

11.20

  Time of the Essence      123  

11.21

  Amendment and Restatement of Existing Credit Agreement      123  

11.22

  Judgment Currency      124  

11.23

  ERISA      124  

11.24

  Acknowledgement and Consent to Bail-In of EEA Financial Institutions      124  

11.25

  ENTIRE AGREEMENT      125  

 

vi


BORROWER PREPARED SCHEDULES

 

Schedule 5.20(a)

  

Subsidiaries, Joint Ventures, Partnerships and Other Equity Investments

Schedule 5.20(b)

  

Loan Parties

Schedule 5.21(g)(ii)

  

Leased Property

Schedule 6.14

  

Excluded Accounts

Schedule 7.01

  

Existing Liens

Schedule 7.02

  

Existing Indebtedness

Schedule 7.03

  

Existing Investments

Schedule 7.08

  

Affiliate Transactions

ADMINISTRATIVE AGENT PREPARED SCHEDULES

 

Schedule 1.01(a)

  

Certain Addresses for Notices

Schedule 1.01(b)

  

Initial Commitments and Applicable Percentages

Schedule 1.01(c)

  

Existing Letters of Credit

EXHIBITS

 

Exhibit A

  

Form of Revolving Note

Exhibit B

  

Form of Term Note

Exhibit C

  

Form of Compliance Certificate

Exhibit D

  

Form of Loan Notice

Exhibit E

  

Form of Swingline Loan Notice

Exhibit F

  

Form of Assignment and Assumption

Exhibit G

  

Form of Administrative Questionnaire

Exhibit H-1

  

Form of U.S. Tax Compliance Certificate

Exhibit H-2

  

Form of U.S. Tax Compliance Certificate

Exhibit H-3

  

Form of U.S. Tax Compliance Certificate

Exhibit H-4

  

Form of U.S. Tax Compliance Certificate

Exhibit I

  

Form of Notice of Loan Prepayment

Exhibit J

  

Form of Notice of Additional L/C Issuer

 

 

vii


THIRD AMENDED AND RESTATED CREDIT AGREEMENT

This THIRD AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of November 6, 2017, among RIGNET, INC., a Delaware corporation (the “ Borrower ”), the Guarantors (defined herein), the Lenders (defined herein), and BANK OF AMERICA, N.A., as Administrative Agent, Swingline Lender and L/C Issuer.

PRELIMINARY STATEMENTS:

A. Borrower has requested that the Lenders, the Swingline Lender and the L/C Issuer make loans and other financial accommodations to Borrower.

B. The Lenders, the Swingline Lender and the L/C Issuer have agreed to make such loans and other financial accommodations to Borrower on the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

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

Acquisition ” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which Borrower or any of its Subsidiaries (a) acquires any going business, line of business, division or enterprise or all or substantially all of the assets of any other Person, whether through the purchase of assets, merger or otherwise, or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) Equity Interests in another Person sufficient to cause such Person to become a Subsidiary of Borrower or any of its Subsidiaries.

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

Administrative Questionnaire ” means an Administrative Questionnaire in substantially the form of Exhibit G or any other form approved by Agent.

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

Aggregate Commitments ” means the Commitments of all the Lenders.

Agreement ” means this Third Amended and Restated Credit Agreement and all exhibits and schedules hereto.

Agreement Currency ” is defined in Section  11.22 hereof.

 


Alternative Currency means each of the following currencies: Euro and Sterling, together with each other currency (other than Dollars) that is approved in accordance with Section  1.11 ; provided that for each Alternative Currency, such requested currency is an Eligible Currency.

Alternative Currency Equivalent means, at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Alternative Currency as determined by the Administrative Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Alternative Currency with Dollars.

Applicable Percentage ” means (a) in respect of the Term Facility, with respect to any Term Lender at any time, the percentage (carried out to the ninth decimal place) of the Term Facility represented by (i) on or prior to the Closing Date, such Term Lender’s Term Commitment at such time and (ii) thereafter, the outstanding principal amount of such Term Lender’s Term Loans at such time, and (b) in respect of the Revolving Facility, with respect to any Revolving Lender at any time, the percentage (carried out to the ninth decimal place) of the Revolving Facility represented by such Revolving Lender’s Revolving Commitment at such time, subject to adjustment as provided in Section  2.15 . If the Commitment of all of the Revolving Lenders to make Revolving Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section  8.02 , or if the Revolving Commitments have expired, then the Applicable Percentage of each Revolving Lender in respect of the Revolving Facility shall be determined based on the Applicable Percentage of such Revolving Lender in respect of the Revolving Facility most recently in effect, giving effect to any subsequent assignments. The Applicable Percentage of each Lender in respect of each Facility is set forth opposite the name of such Lender on Schedule 1.01(b) or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

Applicable Rate ” means, for any day, the rate per annum set forth below opposite the applicable Level then in effect (based on the Consolidated Leverage Ratio):

 

Level

  

Consolidated Leverage Ratio

   Eurodollar Rate &
LIBOR Daily
Floating Rate
     Commitment
Fee
 
1    Less than 1.00 to 1.00      1.75      0.25
2    Greater than or equal to 1.00 to 1.00, but less than 1.50 to 1.00      2.00      0.25
3    Greater than or equal to 1.50 to 1.00, but less than 2.00 to 1.00      2.50      0.30
4    Greater than or equal to 2.00 to 1.00      2.75      0.35

Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section  2.10(b) ; provided that , if a Compliance Certificate is not delivered when due in accordance with such Section, then, upon the request of the Required Lenders, Pricing Level 4 shall apply, in each case as of the fifth Business Day after the date on which such Compliance Certificate was required to have been delivered and in each case shall remain in effect until the first Business Day following the date on which such Compliance Certificate is delivered. Notwithstanding anything to the contrary contained in this definition, (a) the determination of the Applicable Rate for any period shall be subject to the provisions of Section  2.10(b) and (b) the initial Applicable Rate shall be set forth in Level 3 until the first Business Day immediately following the date a Compliance Certificate is delivered to Agent pursuant to Section  6.02(b) for the first fiscal quarter ending after the Closing Date. Any adjustment in the Applicable Rate shall be applicable to all Credit Extensions then existing or subsequently made or issued.

 

2


Applicable Revolving Percentage ” means, with respect to any Revolving Lender at any time, such Revolving Lender’s Applicable Percentage in respect of the Revolving Facility at such time.

Applicable Time ” means, with respect to any payments in any Alternative Currency, the local time in the place of settlement for such Alternative Currency as may be determined by the Administrative Agent or the L/C Issuer, as the case may be, to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.

Appropriate Lender ” means, at any time, (a) with respect to any Facility, a Lender that has a Commitment with respect to such Facility or holds a Loan under such Facility at such time, (b) with respect to the Letter of Credit Sublimit, (i) the L/C Issuer and (ii) if any Letters of Credit have been issued pursuant to Section  2.03 , the Revolving Lenders and (c) with respect to the Swingline Sublimit, (i) the Swingline Lender and (ii) if any Swingline Loans are outstanding pursuant to Section  2.04(a) , the Revolving Lenders.

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

Arranger ” means Merrill Lynch, Pierce, Fenner & Smith Incorporated (or any other registered broker-dealer wholly-owned by Bank of America Corporation to which all or substantially all of Bank of America Corporation’s or any of its subsidiaries’ investment banking, commercial lending services or related businesses may be transferred following the date of this Agreement), in its capacity as sole lead arranger and sole bookrunner.

Assignment and Assumption ” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section  11.06(b) ), and accepted by Agent, in substantially the form of Exhibit F or any other form (including electronic documentation generated by MarkitClear or other electronic platform) approved by Agent.

Attributable Indebtedness ” means, on any date, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP or IFRS, as applicable, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP or IFRS, as applicable, if such lease or other agreement or instrument were accounted for as a Capitalized Lease.

Audited Financial Statements ” means the audited Consolidated balance sheet of Borrower and its Subsidiaries for the fiscal year ended December 31, 2016, and the related Consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of Borrower and its Subsidiaries, including the notes thereto.

Auto-Extension Letter of Credit ” has the meaning specified in Section  2.03(b)(iv) .

Availability Period ” means, in respect of the Revolving Facility, the period from and including the Closing Date to the earliest of (a) the Maturity Date for the Revolving Facility, (b) the date of termination of the Revolving Commitments pursuant to Section  2.06 , and (c) the date of termination of the Commitment of each Revolving Lender to make Revolving Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section  8.02 .

 

3


Bail -In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

Bank of America ” means Bank of America, N.A. and its successors.

Bail -In Legislation ” means, with respect to any EEA Member Country implementing Article  55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

Base Rate ” means for any day a fluctuating rate of interest per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and (c) the Eurodollar Rate for an Interest Period of one month plus 1.00%, subject to the interest rate floors set forth therein; provided that if the Base Rate shall be less than zero, such rate shall be deemed zero for purposes of this Agreement. The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such prime rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

Base Rate Loan ” means a Revolving Loan or a Term Loan that bears interest based on the Base Rate. No Loan shall be a Base Rate Loan unless required or permitted by Section  3.02 or Section  3.03 .

Borrower ” has the meaning specified in the introductory paragraph hereto.

Borrower Account ” has the meaning specified in Section  2.12(a)(ii) .

Borrower Materials ” has the meaning specified in Section  6.02 .

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

Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where Agent’s Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day that is also a London Banking Day.

Capital Expenditures ” means, with respect to any Person for any period, any expenditure in respect of the purchase or other acquisition of any fixed or capital asset that have been or should be, in accordance with GAAP or IFRS, as applicable, reflected as acquisitions, replacements, substitutions, restorations or additions to property, plant or equipment on a Consolidated balance sheet of such Person.

Capitalized Leases ” means all leases that have been or should be, in accordance with GAAP or IFRS, as applicable, recorded as capitalized leases.

 

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Cash Collateralize ” means, to pledge and deposit with or deliver to Agent, for the benefit of one or more of the L/C Issuers or the Lenders, as collateral for L/C Obligations, the Obligations, or obligations of the Revolving Lenders to fund participations in respect of L/C Obligations, (a) cash or deposit account balances, (b) backstop letters of credit entered into on terms, from issuers and in amounts satisfactory to Agent and the applicable L/C Issuer, and/or (c) if Agent and the applicable L/C Issuer shall agree, in their sole discretion, other credit support, in each case, in Dollars and pursuant to documentation in form and substance satisfactory to Agent and such L/C Issuer. “ Cash Collateral ” shall have a meaning correlative to the foregoing and shall include the proceeds of such Cash Collateral and other credit support.

Cash Equivalents ” means any of the following types of Investments, to the extent owned by Borrower or any of its Subsidiaries free and clear of all Liens (other than Permitted Liens):

(a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than three hundred sixty days (360) days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;

(b) time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c)  of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than ninety (90) days from the date of acquisition thereof;

(c) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than one hundred eighty (180) days from the date of acquisition thereof;

(d) Investments, classified in accordance with GAAP as current assets of Borrower or any of its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a) , (b) and (c)  of this definition; and

(e) other short-term investments in a currency other than Dollars ( provided that such alternate currency is readily available, freely traded, and is one in which deposits are customarily offered to banks in the London interbank market), utilized by Foreign Subsidiaries in accordance with normal investment practices for cash management in investments of a type analogous to preceding clauses (a)  through (d) .

Cash Management Agreement ” means any agreement that is not prohibited by the terms hereof to provide treasury or cash management services, including deposit accounts, overnight draft, credit cards, debit cards, p-cards (including purchasing cards and commercial cards), funds transfer, automated clearinghouse, zero balance accounts, returned check concentration, controlled disbursement, lockbox, account reconciliation and reporting and trade finance services and other cash management services.

Cash Management Bank ” means any Person in its capacity as a party to a Cash Management Agreement that, at the time it enters into a Cash Management Agreement with a Loan Party or any Subsidiary, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Cash Management

 

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Agreement (even if such Person ceases to be a Lender or such Person’s Affiliate ceased to be a Lender); provided however, that for any of the foregoing to be included as a “ Secured Cash Management Agreement ” on any date of determination by Agent, the applicable Cash Management Bank (other than Agent or an Affiliate of Agent) must have delivered a Secured Party Designation Notice to Agent prior to such date of determination.

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

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

Change of Control ” means, with respect to Borrower, an event or series of events by which any “ person ” or “ group ” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than any Permitted Investor, becomes the “ beneficial owner ” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “ beneficial ownership ” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “ option right ”)), directly or indirectly, of 30% or more of the equity securities of such Person entitled to vote for members of the board of directors or equivalent governing body of such Person on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right).

Closing Date ” means the date hereof.

Code ” means the Internal Revenue Code of 1986.

Collateral ” means all of the “ Collateral ” and the “ Pledged Collateral ” referred to in the Collateral Documents, and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of Agent for the benefit of the Secured Parties.

Collateral Documents ” means, collectively, each Security Agreement, each Pledge Agreement, each Joinder Agreement, each of the mortgages, collateral assignments, security agreements, pledge agreements or other similar agreements delivered to Agent pursuant to Section  6.15 , and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of Agent for the benefit of the Secured Parties.

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

 

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Commodity Exchange Act ” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute, and any rule, regulation or order of the U.S. Commodity Futures Trading Commission (or the application or official interpretation of any thereof).

Compliance Certificate ” means a certificate substantially in the form of Exhibit C .

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

Consolidated ” means, when used with reference to financial statements or financial statement items of Borrower and its Subsidiaries or any other Person, such statements or items on a consolidated basis in accordance with the consolidation principles of GAAP or IFRS, as applicable.

Consolidated EBITDA ” means, for any period, the sum of the following determined on a Consolidated basis, without duplication, for Borrower and its Subsidiaries in accordance with GAAP or IFRS, as applicable:

(a) Consolidated Net Income for the most recently completed Measurement Period; plus

(b) the following to the extent deducted in calculating such Consolidated Net Income (without duplication):

(i) Consolidated Interest Charges paid or to be paid in cash,

(ii) the provision for federal, state, local and foreign income Taxes payable,

(iii) depreciation and amortization expense,

(iv) non-cash charges and losses (excluding any such non-cash charges or losses to the extent (A) there were cash charges with respect to such charges and losses in past accounting periods or (B) there is a reasonable expectation that there will be cash charges with respect to such charges and losses in future accounting periods), and

(v) all other non-cash finance expenses (including but not limited to (A) changes in valuations of preferred stock, and (B) non-share based compensation expenses); plus

(c) without duplication, transaction fees, costs and expenses incurred by Borrower and its Subsidiaries in connection with this Agreement; plus

(d) without duplication, reasonable, non-recurring transaction fees, costs and expenses incurred by Borrower and its Subsidiaries in connection with any Disposition, issuance, incurrence or Refinancing of any debt, issuance of Equity Interests, Acquisition (other than between or among Borrower and one or more of its Subsidiaries) or other Investment permitted under this Agreement (whether or not consummated); plus

(e) any adjustments resulting from purchase accounting in accordance with GAAP for any Acquisition (other than between or among Borrower and one or more of its Subsidiaries) or other Investment permitted under this Agreement; plus

 

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(f) the amount of any business optimization expense and restructuring charge or reserve deducted (and not added back) in such period in computing Consolidated Net Income, including any restructuring costs incurred in connection with Acquisitions (other than between or among Borrower and one or more of its Subsidiaries) after the Closing Date, costs related to the closure and/or consolidation of facilities, retention charges, systems establishment costs, conversion costs and excess pension charges and consulting fees incurred in connection with the foregoing, provided such costs (x) are actual and identifiable, and (y) to the extent related to an Acquisition (other than between or among Borrower and one or more of its Subsidiaries), do not exceed ten percent (10%) of the applicable Target EBITDA; plus

(g) for such applicable periods, to the extent deducted in calculating such Consolidated Net Income, the amount of the 2015 Special Adjustments ( provided that, any recoveries, or reversals by Borrower of any portion of the 2015 Special Adjustments in any subsequent period shall be deducted in calculating such Consolidated Net Income to the extent that such amount recovered or reversed was included in Consolidated Net Income), plus

(h) to the extent covered by insurance and actually reimbursed, or, so long as the Borrower has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is (A) not denied by the applicable carrier in writing within 180 days and (B) in fact reimbursed within 365 days of the date of such evidence (with a deduction for any amount so added back to the extent not so reimbursed within such 365 days), expenses with respect to liability or casualty events or business interruption, less

(i) without duplication and to the extent reflected as a gain or otherwise included in the calculation of Consolidated Net Income for such period, non-cash gains (excluding any such non-cash gains to the extent (i) there were cash gains with respect to such gains in past accounting periods or (ii) there is a reasonable expectation that there will be cash gains with respect to such gains in future accounting periods).

Consolidated EBITDA ” for any Measurement Period shall be calculated to give pro forma effect to any acquisition or disposition of assets (or closed or classified as discontinued operations) consummated at any time after the first day of such Measurement Period as if each such acquisition or disposition or classification had occurred on the first day of such Measurement Period, provided that any such pro forma adjustment shall be (x) made on a basis consistent with GAAP or IFRS, as applicable, and Regulation S-X promulgated under the Securities Act of 1933, and (y) supported by detailed calculations; provided, at the election of the Borrower, such adjustments shall not be required if the consideration paid in connection with such disposition (but, for the avoidance doubt, not any such acquisition), or the book value of such discontinued assets, is less than $5,000,000.

Consolidated Fixed Charge Coverage Ratio ” means, as of any date of determination, the ratio of (a) (without duplication) (i) Consolidated EBITDA, less (ii) cash Taxes, less (iii) Restricted Payments paid in cash by Borrower to the owners of its Equity Interests, less (iv) Maintenance Capital Expenditures, plus (v) any voluntary prepayment of the Outstanding Amount of Term Loans, in each case for the applicable Measurement Period, to (b) the sum of (i) current maturities of long term Indebtedness (including, but not limited to, any Subordinated Debt and Capitalized Leases), but in each case excluding the scheduled principal payment due and payable by Borrower on the Maturity Date under any Loan made pursuant to this Agreement, plus Consolidated Interest Charges paid in cash for the applicable Measurement Period, plus (iii) scheduled principal payments made in cash in respect of Subordinated Debt for the applicable Measurement Period.

Consolidated Funded Indebtedness ” means, as of any date of determination, for Borrower and its Subsidiaries on a Consolidated basis, the sum (without duplication) of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar

 

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instruments; (b) all purchase money Indebtedness; (c) the maximum amount available to be drawn under issued and outstanding letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments; (d) all obligations in respect of the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business); (e) all Attributable Indebtedness; (f) all obligations (excluding voluntary payments and dividends) to purchase, redeem, retire, defease or otherwise make any payment prior to the Maturity Date in respect of any Equity Interests or any warrant, right or option to acquire such Equity Interests, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (g) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a)  through (f)  above of Persons other than Borrower or any Subsidiary; and (h) all Indebtedness of the types referred to in clauses (a)  through (g)  above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which Borrower or a Subsidiary is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to Borrower or such Subsidiary.

Consolidated Interest Charges ” means, for any Measurement Period, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP or IFRS, as applicable, plus (b) all interest paid or payable with respect to discontinued operations, plus (c) the portion of rent expense under Capitalized Leases that is treated as interest in accordance with GAAP or IFRS, as applicable, in each case, of or by Borrower and its Subsidiaries on a Consolidated basis for the most recently completed Measurement Period.

Consolidated Leverage Ratio ” means, as of any date of determination, the ratio of (a) Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDA for the most recently completed Measurement Period.

Consolidated Net Income ” means, at any date of determination, the net income (or loss) of Borrower and its Subsidiaries on a Consolidated basis for the most recently completed Measurement Period; provided that Consolidated Net Income shall exclude:

(a) extraordinary gains and extraordinary losses for such Measurement Period,

(b) the net income of any Subsidiary during such Measurement Period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not permitted by operation of the terms of its Organization Documents or any agreement, instrument or Law applicable to such Subsidiary during such Measurement Period, except that Borrower’s equity in any net loss of any such Subsidiary for such Measurement Period shall be included in determining Consolidated Net Income,

(c) any income (or loss) for such Measurement Period of any Person if such Person is not a Subsidiary, except that Borrower’s equity in the net income of any such Person for such Measurement Period shall be included in Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such Measurement Period to Borrower or a Subsidiary as a dividend or other distribution (and in the case of a dividend or other distribution to a Subsidiary, such Subsidiary is not precluded from further distributing such amount to Borrower as described in clause (b)  of this proviso),

(d) any non-cash foreign exchange translation gains or losses, and

 

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(e) the cumulate effect of a change in accounting principles, subject to Section  1.03(b) .

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

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

Credit Extension ” means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.

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

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

Default Rate ” means (a) with respect to any Obligation for which a rate is specified, a rate per annum equal to two percent (2%) in excess of the rate otherwise applicable thereto and (b) with respect to any Obligation for which a rate is not specified or available, a rate per annum equal to the LIBOR Daily Floating Rate plus the Applicable Rate for Revolving Loans that are LIBOR Daily Floating Rate Loans plus two percent (2%), in each case, to the fullest extent permitted by applicable Law.

Defaulting Lender ” means, subject to Section  2.15(b) , any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2) Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies Agent and Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to Agent, the L/C Issuer, the Swingline Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swingline Loans) within two (2) Business Days of the date when due, (b) has notified Borrower, Agent, the L/C Issuer or the Swingline Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three (3) Business Days after written request by Agent or Borrower, to confirm in writing to Agent and Borrower that it will comply with its prospective funding obligations hereunder ( provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause upon receipt of such written confirmation by Agent and Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such

 

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ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by Agent that a Lender is a Defaulting Lender under any one or more of clauses (a)  through (d) above, and the effective date of such status, shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section  2.15(b) ) as of the date established therefor by Agent in a written notice of such determination, which shall be delivered by Agent to Borrower, the L/C Issuer, the Swingline Lender and each other Lender promptly following such determination.

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

Disposition ” or “ Dispose ” means the sale, transfer, license, lease or other disposition (including any Sale and Leaseback Transaction) of any property by any Loan Party or Subsidiary, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith. For the avoidance of doubt, a Disposition shall not include any Involuntary Disposition or the issuance by any Person of its Equity Interests.

Dollar ” and “ $ ” mean lawful money of the United States.

Dollar Equivalent ” means, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any Alternative Currency, the equivalent amount thereof in Dollars as determined by Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of Dollars with such Alternative Currency.

Domestic Subsidiary ” means any Subsidiary that is organized under the laws of the United States, any State thereof, or the District of Columbia.

EEA Financial Institution ” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause  (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a Subsidiary of an institution described in clauses  (a) or  (b) of this definition and is subject to consolidated supervision with its parent.

EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

EEA Resolution Authority ” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

Eligible Assignee ” means any Person that meets the requirements to be an assignee under Section  11.06 (subject to such consents, if any, as may be required under Section  11.06(b)(iii) ).

Eligible Currency ” means any lawful currency other than Dollars that is readily available, freely transferable and convertible into Dollars in the international interbank market available to the Lenders in such market and as to which a Dollar Equivalent may be readily calculated. If, after the designation by the Lenders of any currency as an Alternative Currency, any change in currency controls or exchange

 

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regulations or any change in the national or international financial, political or economic conditions are imposed in the country in which such currency is issued, result in, in the reasonable opinion of the L/C Issuer (in the case of any Alternative Currency Letters of Credit), (a) such currency no longer being readily available, freely transferable and convertible into Dollars, (b) a Dollar Equivalent is no longer readily calculable with respect to such currency, (c) providing such currency is impracticable for the Lenders or (d) no longer a currency in which the Required Lenders are willing to make such L/C Credit Extensions (each of (a), (b), (c), and (d) a “ Disqualifying Event ”), then the Administrative Agent shall promptly notify the Lenders and the Borrower, and such country’s currency shall no longer be an Alternative Currency until such time as the Disqualifying Event(s) no longer exist.

Environmental Laws ” means any and all applicable federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

Equity Interests ” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

ERISA ” means the Employee Retirement Income Security Act of 1974.

ERISA Affiliate ” means any trade or business (whether or not incorporated) under common control with Borrower within the meaning of Section  414(b) or ( c)  of the Code (and Sections 414(m) and (o)  of the Code for purposes of provisions relating to Section  412 of the Code).

ERISA Event ” means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section  4063 of ERISA during a plan year in which such entity was a “ substantial employer ” as defined in Section  4001(a)( 2 ) of ERISA or a cessation of operations that is treated as such a withdrawal under Section  4062(e) of ERISA; (c) a complete or partial withdrawal by an Loan Party or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization, insolvent or endangered status; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section  4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section  4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that

 

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any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections  430 , 431 and 432 of the Code or Sections 303 , 304 and 305 of ERISA; (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section  4007 of ERISA, upon any Loan Party or any ERISA Affiliate or (i) failure by the Borrower or any ERISA Affiliate to meet all applicable requirements under the Pension Funding Rules in respect of a Pension Plan, whether or not waived, or the failure by the Borrower or any ERISA Affiliate to make any required contribution to a Multiemployer Plan.

EU Bail -In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.

Euro ” and “ ” mean the single currency of the Participating Member States.

Eurodollar Rate ” means:

(a) for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the London Interbank Offered Rate (“ LIBOR ”), or a comparable or successor rate which rate is approved by Agent, as published on the applicable Bloomberg screen page (or such other commercially available source providing such quotations as may be designated by Agent from time to time) (in such case, the “ LIBOR Rate ”) at or about 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period; and

(b) for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to the LIBOR Rate, at or about 11:00 a.m., London time, two (2) Business Days prior to such date for Dollar deposits with a term of one (1) month commencing that day (in such case, the “ LIBOR Daily Floating Rate ”);

provided that: (i) to the extent a comparable or successor rate is approved by Agent in connection herewith, the approved rate shall be applied in a manner consistent with market practice; provided, further that to the extent such market practice is not administratively feasible for Agent, such approved rate shall be applied in a manner as otherwise reasonably determined by Agent; and (ii) if the Eurodollar Rate shall be less than zero, such rate shall be deemed zero for purposes of this Agreement.

Eurodollar Rate Loan ” means a Loan that bears interest at a rate based on the Eurodollar Rate, but excluding any Loan that bears interest based on the LIBOR Daily Floating Rate.

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

Excluded Assets ” means those assets expressly and specifically excluded as Collateral pursuant to the Collateral Documents.

Excluded Swap Obligation ” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act by virtue of such Guarantor’s failure for any reason to constitute an “ eligible contract participant ” as defined in the Commodity Exchange Act at the time the Guarantee of such Guarantor or the grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.

 

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Excluded Taxes ” means any of the following Taxes imposed on or with respect to any Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income or profits (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by Borrower under Section  11.13 ) or (ii) such Lender changes its Lending Office, except in each case to the extent that, pursuant to in Section  3.01 , amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its Lending Office, (c) Taxes attributable to such Recipient’s failure to comply with Section  3.01(e) and (d) any U.S. federal withholding Taxes imposed pursuant to FATCA.

Existing Credit Agreement ” means that certain Second Amended and Restated Credit Agreement dated as of October 3, 2013, among Borrower, the lenders party thereto, and Bank of America, as Administrative Agent for itself and the other lenders party thereto, as amended by that certain First Amendment to Second Amended and Restated Credit Agreement dated as of February 24, 2016, that certain Second Amendment to Second Amended and Restated Credit Agreement dated as of December 16, 2016, and as further amended or supplemented prior to the date hereof.

Existing Lenders ” means the lenders party to the Existing Credit Agreement.

Exiting Lenders ” has the meaning set forth in Section  2.1(c) .

Existing Letters of Credit ” means those certain letters of credit set forth on Schedule  1.01(c) .

Facility ” means the Term Facility or the Revolving Facility, as the context may require.

Facility Termination Date ” means the date as of which all of the following shall have occurred: (a) the Aggregate Commitments have terminated, (b) all Obligations have been paid in full (other than contingent indemnification obligations), and (c) all Letters of Credit have terminated or expired (other than Letters of Credit as to which other arrangements with respect thereto satisfactory to Agent and the L/C Issuer shall have been made).

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

FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code, any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to such intergovernmental agreement.

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

 

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Fee Letter ” means that certain letter agreement, dated July 31, 2017, among Borrower, the Agent and the Arranger, as amended, restated or supplemented from time to time.

Foreign Benefit Arrangement ” means any employee benefit arrangement mandated by or maintained under any non-U.S. law or jurisdiction that is maintained or contributed by any Loan Party or ERISA Affiliate.

Foreign Lender ” means (a) if Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

Foreign Subsidiary ” means any Subsidiary that is not a Domestic Subsidiary, provided that, for purposes of this Agreement and the other Loan Documents, each of ComPetro Communications LLC, a Delaware limited liability company, and ComPetro Communications Holdings LLC, a Delaware limited liability company, shall be deemed to be a Foreign Subsidiary.

FRB ” means the Board of Governors of the Federal Reserve System of the United States.

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

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

Funding Indemnity Letter ” means a funding indemnity letter, in form and substance acceptable to Agent and its counsel.

GAAP ” means generally accepted accounting principles in the United States set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession) including, without limitation, the FASB Accounting Standards Codification, that are applicable to the circumstances as of the date of determination, consistently applied and subject to Section  1.03 .

Governmental Authority ” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including, without limitation, the Financial Conduct Authority, the Prudential Regulation Authority and any supra-national bodies such as the European Union or the European Central Bank).

 

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Guarantee ” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of the kind described in clauses (a)  through (g)  of the definition thereof or other obligation payable or performable by another Person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness of the kind described in clauses (a)  through (g)  of the definition thereof or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed or expressly undertaken by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “ Guarantee ” as a verb has a corresponding meaning.

Guarantors ” means the Subsidiaries of Borrower as are or may from time to time become parties to this Agreement pursuant to Section  6.12 .

Guaranty ” means, collectively, the Guaranty made by the Guarantors under Article X in favor of the Secured Parties, together with each other guaranty delivered pursuant to Section  6.12 .

Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

Hedge Bank ” means any Person in its capacity as a party to a Swap Contract that, at the time it enters into a Swap Contract not prohibited under Article VI or VII , is a Lender or an Affiliate of a Lender, in its capacity as a party to such Swap Contract (even if such Person ceases to be a Lender or such Person’s Affiliate ceased to be a Lender); provided that, in the case of a Secured Hedge Agreement with a Person who is no longer a Lender (or Affiliate of a Lender), such Person shall be considered a Hedge Bank only through the stated termination date (without extension or renewal) of such Secured Hedge Agreement and provided further, that for any of the foregoing to be included as a “ Secured Hedge Agreement ” on any date of determination by Agent, the applicable Hedge Bank (other than Agent or an Affiliate of Agent) must have delivered a Secured Party Designation Notice to Agent prior to such date of determination.

Honor Date ” has the meaning set forth in Section  2.03(c)(i) .

IFRS ” means the International Financial Reporting Standards adopted by the International Accounting Standards Board that are applicable to the circumstances as of the date of determination, subject to Section  1.03 .

 

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Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP or IFRS, as applicable:

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(c) net obligations of such Person under any Swap Contract;

(d) all obligations of such Person to pay the deferred purchase price of property or services (other than (i) trade accounts payable in the ordinary course of business and, in each case, not past due for more than 60 days after the due date therefor or outstanding for more than 90 days after the date on which such trade account payable was created unless such account is being contested in good faith and appropriate reserves made, (ii) purchase price holdbacks in respect of portion of the purchase price of an asset to satisfy warranty or other unperformed obligations of the respective seller, (iii) deferred compensation accrued in the ordinary course of business, (iv) any contingent obligation to purchase any asset and (v) any earn-out obligations in connection with any permitted Acquisition or permitted Investment payable in cash until the requirements of the deferred earn-out have been fully achieved or realized and the amount becomes contractually due);

(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f) all Attributable Indebtedness in respect of Capitalized Leases and Synthetic Lease Obligations of such Person and all Synthetic Debt of such Person;

(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or warrant, right or option to acquire any such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

(h) all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. Notwithstanding anything to the contrary contained herein, Indebtedness shall not include (x) reimbursement obligations in respect of any letter of credit the payment of which is either fully (i) backed by a letter of credit or (ii) cash collateralized or (y) any obligation payable in common Equity Interests.

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

 

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Indemnitees ” has the meaning specified in Section  11.04(b) .

Information ” has the meaning specified in Section  11.07 .

Interest Payment Date ” means, (a) as to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date of the Facility under which such Loan was made; provided however, that if any Interest Period for a Eurodollar Rate Loan exceeds three (3) months, the respective dates that fall every three (3) months after the beginning of such Interest Period shall also be Interest Payment Dates; (b) as to any LIBOR Daily Floating Rate Loan, the last day of each month and the Maturity Date of the Facility under which such Loan was made (with Swingline Loans being deemed made under the Revolving Facility for purposes of this definition); and (c) as to any Base Rate Loan, the last day of each month and the Maturity Date of the Facility under which such Loan was made.

Interest Period ” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one (1), two (2), or three (3) or, only if available to all of the Lenders, six (6) months thereafter, as selected by Borrower in its Loan Notice; provided that:

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

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

(c) no Interest Period shall extend beyond the Maturity Date of the Facility under which such Loan was made.

Investment ” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit or all or a substantial part of the business of, such Person, or (d) any other Acquisition. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

Involuntary Disposition ” means any loss of, damage to or destruction of, or any condemnation or other taking for public use of, any property of any Loan Party or any Subsidiary.

IRS ” means the United States Internal Revenue Service.

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

Issuer Documents ” means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and Borrower (or any Subsidiary) or in favor of the L/C Issuer and relating to such Letter of Credit.

 

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Joinder Agreement ” means a joinder agreement in form and substance acceptable to Agent and its counsel which is executed and delivered in accordance with the provisions of Sections 6.12 and 6.13 .

Judgment Currency ” is defined in Section  11.22 hereof.

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

L/C Advance ” means, with respect to each Revolving Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Revolving Percentage. All L/C Advances shall be denominated in Dollars.

L/C Borrowing ” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Revolving Borrowing. All L/C Borrowings shall be denominated in Dollars.

L/C Commitment ” means, (a) as to Bank of America, its obligation to issue Letters of Credit to the Borrower pursuant to Section  2.03 in an aggregate principal amount at any one time outstanding not to exceed US$25,000,000 and (b) as to each other L/C Issuer, its obligation to issue Letters of Credit to the Borrower pursuant to Section  2.03 in an aggregate principal amount at any one time outstanding for all L/C Issuers under this clause (b)  not to exceed US$5,000,000, in each case, as such amount may be adjusted from time to time in accordance with this Agreement.

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

L/C Issuer ” means with respect to a particular Letter of Credit, (a) Bank of America, through itself or through one of its designated Affiliates or branch offices, in its capacity as issuer of Letters of Credit hereunder, or any successor issuer thereof, (b) such other Lender selected by the Borrower pursuant to Section  2.03(k) from time to time to issue such Letter of Credit ( provided that no Lender shall be required to become an L/C Issuer pursuant to this subclause (b)  without such Lender’s consent), or any successor issuer thereof or (c) any Lender selected by the Borrower (with the prior consent of Agent) to replace a Lender who is a Defaulting Lender at the time of such Lender’s appointment as an L/C Issuer ( provided that no Lender shall be required to become an L/C Issuer pursuant to this subclause (c)  without such Lender’s consent), or any successor issuer thereof.

L/C Obligations ” means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section  1.07 . For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

Lender ” means each of the Persons identified as a “ Lender ” on the signature pages hereto, each other Person that becomes a “ Lender ” in accordance with this Agreement and, their successors and permitted assigns and, unless the context requires otherwise, includes the Swingline Lender.

 

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Lending Office ” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify Borrower and Agent.

Letter of Credit ” means any letter of credit issued hereunder. A Letter of Credit may be a commercial letter of credit or a standby letter of credit. Letters of Credit may be issued in Dollars or in an Alternative Currency.

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

Letter of Credit Collateralization Date ” means the day that is the earlier of: (a) ninety (90) days prior to the Maturity Date then in effect or (b) the date upon which Administrative Agent declares the Obligations due and payable after the occurrence of an Event of Default.

Letter of Credit Expiration Date ” means the day that is seven (7) days prior to the Maturity Date then in effect for the Revolving Facility (or, if such day is not a Business Day, the next preceding Business Day).

Letter of Credit Fee ” has the meaning specified in Section  2.03(h) .

Letter of Credit Sublimit ” means an amount equal to the lesser of (a) $25,000,000 and (b) the Revolving Facility. The Letter of Credit Sublimit is part of, and not in addition to, the Revolving Facility.

LIBOR ” has the meaning specified in the definition of Eurodollar Rate.

LIBOR Daily Floating Rate ” has the meaning specified in clause (b)  of “Eurodollar Rate”.

LIBOR Daily Floating Rate Loan ” means a Loan that bears interest based on the LIBOR Daily Floating Rate.

LIBOR Quoted Currency ” means Dollars, Euro, and Sterling, in each case as long as there is a published LIBOR rate with respect thereto.

Lien ” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property and any financing lease having substantially the same economic effect as any of the foregoing) excluding for purposes hereof, any of the foregoing in favor of a lessor on the property or assets (and no other property or assets of the Loan Parties) leased to the Loan Parties under operating leases (under GAAP or IFRS, as applicable) of the Loan Parties entered into in the ordinary course of business and on usual and customary terms.

Loan ” means an extension of credit by a Lender to Borrower under Article II in the form of a Revolving Loan or a Swingline Loan.

Loan Documents ” means, collectively, (a) this Agreement, (b) the Notes, (c) the Guaranty, (d) the Collateral Documents, (e) the Fee Letter, (f) each Issuer Document, (g) each Joinder Agreement, and (h) any agreement creating or perfecting rights in Cash Collateral pursuant to the provisions of Section  2.14 , but specifically excluding any Secured Hedge Agreement or any Secured Cash Management Agreement.

 

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Loan Notice ” means a notice of (a) a Borrowing, (b) a conversion of Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section  2.02(a) , which, if in writing, shall be substantially in the form of Exhibit D or such other form as may be approved by Agent (including any form on an electronic platform or electronic transmission system as shall be approved by Agent), appropriately completed and signed by a Responsible Officer of Borrower.

Loan Parties ” means, collectively, Borrower and each Guarantor.

London Banking Day ” means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

Maintenance Capital Expenditures ” means a Capital Expenditure made by any Loan Party to maintain the operations of any Loan Party at then current levels; provided, however, that Maintenance Capital Expenditures shall not include:

 

  (a) expenditures to the extent they are made with proceeds of the issuance of Equity Interests of Borrower after the Closing Date;

 

  (b) expenditures of proceeds of indemnity payments, insurance settlements, condemnation awards and other settlements in respect of lost, destroyed, damaged or condemned assets, equipment or other property to the extent such expenditures are made, or a binding contract is or has been entered into to make such expenditures, to replace or repair such lost, destroyed, damaged or condemned assets, equipment or other property or otherwise to acquire, maintain, develop, construct, improve, upgrade or repair assets or properties useful in the business of Borrower and the Subsidiaries within 12 months of receipt of such proceeds;

 

  (c) interest capitalized during such period;

 

  (d) expenditures that are accounted for as capital expenditures of such Person and that actually are paid for by a third party (excluding Borrower or any Subsidiary thereof) and for which neither Borrower nor any Subsidiary thereof has provided or is required to provide or incur, directly or indirectly, any consideration or obligation to such third party or any other Person (whether before, during or after such period);

 

  (e) the book value of any asset owned by such Person prior to or during such period to the extent that such book value is included as a Capital Expenditure during such period as a result of such Person reusing or beginning to reuse such asset during such period without a corresponding expenditure actually having been made in such period; provided that any expenditure necessary in order to permit such asset to be reused shall be included as a Capital Expenditure during the period that such expenditure actually is made;

 

  (f) the purchase price of equipment purchased during such period to the extent the consideration therefor consists of any combination of (i) used or surplus equipment traded in at the time of such purchase and (ii) the proceeds of a concurrent sale of used or surplus equipment, in each case, in the ordinary course of business;

 

  (g) the purchase price of equipment that is purchased substantially contemporaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time; and

 

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  (h) expenditures made by Borrower or any of its Subsidiaries to effect leasehold improvements to any property leased by Borrower or any of its Subsidiaries as lessee, to the extent such expenses have been reimbursed in cash by the landlord.

Material Adverse Effect ” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), or financial condition of Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of Borrower, or the Loan Parties taken as a whole, to perform their obligations under any Loan Document to which it is a party; (c) a material adverse effect upon the legality, validity, binding effect or enforceability against Borrower or any of its Subsidiaries of any Loan Document to which it is a party; or (d) a material adverse effect on the interest of the Loan Parties, taken as a whole, in, or the value, perfection or priority of Agent’s security interest in a material portion of the Collateral.

Material Foreign Subsidiary means each of (a) RigNet Luxembourg Holdings, and (b) each other Significant Subsidiary of Borrower that (i) is a CFC and (ii) is not owned or deemed to be owned for U.S. tax purposes by a CFC, directly or indirectly.

Maturity Date ” means November 6, 2020; provided however, that, if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.

Measurement Period ” means, at any date of determination, the most recently completed four (4) fiscal quarters of Borrower or, if fewer than four (4) consecutive fiscal quarters of Borrower have been completed since the Closing Date, the fiscal quarters of Borrower that have been completed since the Closing Date.

Minimum Collateral Amount ” means, at any time, (a) with respect to Cash Collateral consisting of cash or deposit account balances provided to reduce or eliminate Fronting Exposure during any period when a Lender constitutes a Defaulting Lender, an amount equal to 105% of the Fronting Exposure of the L/C Issuer with respect to Letters of Credit issued and outstanding at such time, (b) with respect to Cash Collateral consisting of cash or deposit account balances provided in accordance with the provisions of Section  2.14(a)(i) , (a)(ii) , ( a)(iii) or (a)(iv) , an amount equal to 105% of the Outstanding Amount of all L/C Obligations, and (c) otherwise, an amount determined by Agent and the L/C Issuer in their sole discretion but in no event to exceed 105% of such liabilities.

Moody’s ” means Moody’s Investors Service, Inc. and any successor thereto.

Multiemployer Plan ” means any employee benefit plan of the type described in Section  4001(a)( 3 ) of ERISA, to which any Loan Party or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five (5) plan years, has made or been obligated to make contributions.

Multiple Employer Plan ” means a Plan which has two or more contributing sponsors (including Borrower or any ERISA Affiliate) at least two of whom are not under common control, as such a plan is described in Section  4064 of ERISA.

Net Cash Proceeds ” means the aggregate cash or Cash Equivalents proceeds received by any Loan Party or any Subsidiary in respect of any Disposition, or Involuntary Disposition, net of (a) direct costs and expenses incurred in connection therewith (including, without limitation, legal, accounting and

 

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investment banking fees and sales commissions), (b) taxes paid or payable as a result thereof (including, in respect of any Disposition or Involuntary Disposition by a Foreign Subsidiary or CFC, taxes paid or payable upon the repatriation of any such proceeds) and (c) in the case of any Disposition or any Involuntary Disposition, the amount necessary to retire any Indebtedness secured by a Permitted Lien (ranking senior to any Lien of Agent) on the related property; it being understood that “ Net Cash Proceeds ” shall include, without limitation, any cash or Cash Equivalents received upon the sale or other disposition of any non-cash consideration received by any Loan Party or any Subsidiary in any Disposition, or Involuntary Disposition.

Non-Consenting Lender ” means any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all Lenders or all affected Lenders, or all Lenders or all affected Lenders in a Facility or all Lenders entitled to payment, in accordance with the terms of Section  11.01 and (b) has been approved by the Required Lenders.

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

Non-Extension Notice Date ” has the meaning specified in Section  2.03(b)(iv) .

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

Notice of Additional L/C Issuer ” means a certificate substantially the form of Exhibit J or any other form approved by Agent.

Notice of Loan Prepayment ” means a notice of prepayment with respect to a Loan, which shall be substantially in the form of Exhibit I or such other form as may be approved by Agent (including any form on an electronic platform or electronic transmission system as shall be approved by Agent), appropriately completed and signed by a Responsible Officer.

NPL ” means the National Priorities List under CERCLA.

Obligations ” means: (a) all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit (but specifically excluding any debts, liabilities, obligations, covenants and duties under any Secured Hedge Agreement or any Secured Cash Management Agreement) and (b) all costs and expenses incurred in connection with enforcement and collection of the foregoing, including the fees, charges and disbursements of counsel, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest, expenses and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof pursuant to any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest, expenses and fees are allowed claims in such proceeding; provided that with respect to any Loan Party that is not an “ eligible contract participant ” under the Commodity Exchange Act, Excluded Swap Obligations shall be excluded from “ Obligations ” owing by such Loan Party.

OFAC ” means the Office of Foreign Assets Control of the United States Department of the Treasury.

Organization Documents ” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of

 

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formation or organization and operating agreement or limited liability company agreement (or equivalent or comparable documents with respect to any non-U.S. jurisdiction); (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization (or equivalent or comparable documents with respect to any non-U.S. jurisdiction) and (d) with respect to all entities, any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization (or equivalent or comparable documents with respect to any non-U.S. jurisdiction).

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

Other Taxes ” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section  3.06 ).

Outstanding Amount ” means (a) with respect to Term Loans, Revolving Loans and Swingline Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Term Loans, Revolving Loans and Swingline Loans, as the case may be, occurring on such date; and (b) with respect to any L/C Obligations on any date, the Dollar Equivalent amount of the aggregate outstanding amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by Borrower of Unreimbursed Amounts.

Overnight Rate ” means, for any day, (a) with respect to any amount denominated in Dollars, the greater of (i) the Federal Funds Rate and (ii) an overnight rate determined by the Administrative Agent, the L/C Issuer, or the Swingline Lender, as the case may be, in accordance with banking industry rules on interbank compensation, and (b) with respect to any amount denominated in an Alternative Currency, an overnight rate determined by Agent or the L/C Issuer, as the case may be, in accordance with banking industry rules on interbank compensation.

Participant ” has the meaning specified in Section  11.06(d) .

“Participant Register ” has the meaning specified in Section  11.06(d) .

Participating Member State ” means any member state of the European Union that adopts or has adopted the Euro as its lawful currency in accordance with legislation of the European Union relating to Economic and Monetary Union.

PBGC ” means the Pension Benefit Guaranty Corporation.

Pension Act ” means the Pension Protection Act of 2006.

 

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Pension Funding Rules ” means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section  412 of the Code and Section  302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section  412 , 430 , 431 , 432 and 436 of the Code and Sections 302 , 303 , 304 and 305 of ERISA.

Pension Plan ” means any employee pension benefit plan (other than a Multiemployer Plan, but including a Multiple Employer Plan) that is maintained or is contributed to by any Loan Party and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section  412 of the Code.

Permitted Investor ” means (a) Altira Group LLC, (b) T. Rowe Price, (c) either Cubera Private Equity or KKR & Co. L.P., or (d) any investment fund or other entity that any Person described in clause (a) , (b) or (c) (or its officers or employees) manages, controls or holds contract management responsibility for or in which any such Person holds a profits interest.

Permitted Refinancing Indebtedness ” shall mean, with respect to any Indebtedness (the “ Refinanced Indebtedness ”), any Indebtedness issued or incurred in exchange for, or the net proceeds of which are used to modify, extend, refinance, renew, replace or refund (collectively to “ Refinance ” or a “ Refinancing ” or “ Refinanced ”), such Refinanced Indebtedness (or previous refinancing thereof constituting Permitted Refinancing Indebtedness); provided that (A) the principal amount (or accreted value, if applicable) of any such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Refinanced Indebtedness outstanding immediately prior to such Refinancing except by an amount equal to the unpaid accrued interest and premium thereon plus other reasonable amounts paid and fees and expenses incurred in connection with such Refinancing plus an amount equal to any existing commitment unutilized and letters of credit undrawn thereunder, and (B) the material terms and conditions of any such Permitted Refinancing Indebtedness, taken as a whole, are not materially more favorable to the Persons providing such Indebtedness than the terms and conditions of the Refinanced Indebtedness being Refinanced (including, if applicable, as to collateral priority and subordination, but excluding as to interest rates, fees, funding discounts and redemption or prepayment premiums); provided that a certificate of a Responsible Officer of the Borrower delivered to the Agent at least five Business Days prior to the incurrence or issuance of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or drafts of the documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence that such terms and conditions satisfy the foregoing requirement unless the Agent notifies the Borrower within such five Business Day period that it disagrees with such determination (including a reasonable description of the basis upon which it disagrees).

Permitted Transfers ” means (a) Dispositions of inventory in the ordinary course of business; (b) Dispositions of property to Borrower or any Subsidiary; provided that, if the transferor of such property is a Loan Party, (i) the transferee thereof must be a Loan Party, or (ii) such transaction must be an intercompany Investment permitted under Section  7.03(c) ; (c) Dispositions of accounts receivable in connection with the collection or compromise thereof; (d) licenses, sublicenses, leases or subleases granted to others not interfering in any material respect with the business of Borrower and its Subsidiaries; and (e) the sale or disposition of Cash Equivalents for fair market value.

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

 

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Plan ” means any employee benefit plan within the meaning of Section  3( 3 ) of ERISA (including a Pension Plan), maintained for employees of Borrower or, any ERISA Affiliate or any such Plan to which any Loan Party or any ERISA Affiliate is required to contribute on behalf of any of its employees.

Platform ” has the meaning specified in Section  6.02 .

Pledge Agreement ” means each pledge agreement in form and substance reasonably acceptable to Agent and its counsel, executed by a Loan Party in favor of Agent.

Pledged Collateral ” has the meaning specified in each Pledge Agreement.

Public Lender ” has the meaning specified in Section  6.02 .

Qualified ECP Guarantor ” means, in respect of any Swap Obligation, each Loan Party that has total assets exceeding $10,000,000 at the time the relevant Guarantee or grant of the relevant Lien becomes effective with respect to such Swap Obligation or such other Person as constitutes an “ eligible contract participant ” under the Commodity Exchange Act and can cause another person to qualify as an “ eligible contract participant ” at such time by entering into a keepwell under Section  1a(18)(A)(v)(II) of the Commodity Exchange Act.

Qualifying Control Agreement ” means an agreement, among a Loan Party, a depository institution or securities intermediary and Agent, which agreement is in form and substance reasonably acceptable to Agent and which provides Agent with “ control ” (as such term is used in Article 9 of the UCC) over the deposit account(s) or securities account(s) described therein.

Recipient ” means Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder.

Register ” has the meaning specified in Section  11.06(c) .

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

Reportable Event ” means any of the events set forth in Section  4043(c) , of ERISA, other than events for which the thirty (30) day notice period has been waived.

Request for Credit Extension ” means (a) with respect to a Borrowing, conversion or continuation of Term Loans or Revolving Loans, a Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swingline Loan, a Swingline Loan Notice.

Required Lenders ” means, at any time, Lenders having Total Credit Exposures representing more than 50% of the Total Credit Exposures of all Lenders. The Total Credit Exposure of any Defaulting Lender shall be disregarded in determining Required Lenders at any time; provided that, (a) the amount of any participation in any Swingline Loan and Unreimbursed Amounts that such Defaulting Lender has failed to fund that have not been reallocated to and funded by another Lender shall be deemed to be held by the Lender that is the Swingline Lender or L/C Issuer, as the case may be, in making such determination, and (b) if there are only two Lenders, then Required Lenders shall mean both Lenders.

 

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Required Revolving Lenders ” means, at any time, Revolving Lenders having Revolving Exposure representing more than 50% of the Revolving Exposure of all Revolving Lenders. The Revolving Exposure of any Defaulting Lender shall be disregarded in determining Required Revolving Lenders at any time; provided that, the amount of any participation in any Swingline Loan and Unreimbursed Amount that such Defaulting Lender has failed to fund that have not been reallocated to and funded by another Lender shall be deemed to be held by the Lender that is the Swingline Lender or L/C Issuer, as the case may be, in making such determination.

Required Term Lenders ” means, as of any date of determination, Term Lenders holding more than 50% of the Term Facility on such date; provided that the portion of the Term Facility held by any Defaulting Lender shall be excluded for purposes of making a determination of Required Term Lenders.

Responsible Officer ” means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer or controller of a Loan Party and, solely for purposes of the delivery of incumbency certificates pursuant to Section  4.01 , the secretary or any assistant secretary of a Loan Party and, solely for purposes of notices given pursuant to Article II , any other officer or employee of the applicable Loan Party so designated by any of the foregoing officers in a notice to Agent or any other officer or employee of the applicable Loan Party designated in or pursuant to an agreement between the applicable Loan Party and Agent. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. To the extent requested by Agent, each Responsible Officer will provide an incumbency certificate and to the extent requested by Agent, appropriate authorization documentation, in form and substance reasonably satisfactory to Agent.

Restricted Payment ” means (a) any dividend or other distribution, direct or indirect, on account of any shares (or equivalent) of any class of Equity Interests of Borrower or any of its Subsidiaries, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment (whether in cash, securities or other property), purchase or other acquisition for value, direct or indirect, of any shares (or equivalent) of any class of Equity Interests of Borrower or any of its Subsidiaries, now or hereafter outstanding, including, but not limited to, any sinking fund or similar deposit, (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Equity Interests of any Loan Party or any of its Subsidiaries, now or hereafter outstanding.

Revaluation Date ” means with respect to any Letter of Credit, each of the following: (a) each date of issuance, amendment and/or extension of a Letter of Credit denominated in an Alternative Currency, (b) each date of any payment by the L/C Issuer under any Letter of Credit denominated in an Alternative Currency, (c) in the case of all Existing Letters of Credit denominated in Alternative Currencies, the Closing Date, and (d) such additional dates as Agent or the L/C Issuer shall determine or the Required Lenders shall require.

Revolving Borrowing ” means a borrowing consisting of simultaneous Revolving Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Revolving Lenders pursuant to Section  2.01(b) .

Revolving Commitment ” means, as to each Revolving Lender, its obligation to (a) make Revolving Loans to Borrower pursuant to Section  2.01(b) , (b) purchase participations in L/C Obligations, and (c) purchase participations in Swingline Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule  1.01(b) under the caption “ Revolving Commitment ” or opposite such caption in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. The Revolving Commitment of all of the Revolving Lenders on the Closing Date is $85,000,000.

 

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Revolving Exposure ” means, as to any Lender at any time, the aggregate principal amount at such time of its outstanding Revolving Loans and such Lender’s participation in L/C Obligations and Swingline Loans at such time.

Revolving Facility ” means, at any time, the aggregate amount of the Revolving Lenders’ Revolving Commitments at such time.

Revolving Lender ” means, at any time, (a) so long as any Revolving Commitment is in effect, any Lender that has a Revolving Commitment at such time or (b) if the Revolving Commitments have terminated or expired, any Lender that has a Revolving Loan or a participation in L/C Obligations or Swingline Loans at such time.

Revolving Loan ” has the meaning specified in Section  2.01(b) .

Revolving Note ” means a promissory note made by Borrower in favor of a Revolving Lender evidencing Revolving Loans or Swingline Loans, as the case may be, made by such Revolving Lender, substantially in the form of Exhibit A .

RigNet Luxembourg Holdings means RigNet Luxembourg Holdings, a societe a responsabilite limitee (private limited liability company) organized under the laws of the Grand-Duchy of Luxembourg.

S&P ” means Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successor thereto.

Sale and Leaseback Transaction ” means, with respect to any Loan Party or any Subsidiary, any arrangement, directly or indirectly, with any Person whereby such Loan Party or such Subsidiary shall sell or transfer any property used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred.

Same Day Funds ” means (a) with respect to disbursements and payments in Dollars, immediately available funds, and (b) with respect to disbursements and payments in an Alternative Currency, same day or other funds as may be determined by Agent or the L/C Issuer, as the case may be, to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Alternative Currency.

Sanction(s) ” means any international economic sanction administered or enforced by the United States Government (including, without limitation, OFAC), the United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority.

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

Secured Cash Management Agreement ” means any Cash Management Agreement between the any Loan Party and any of its Subsidiaries and any Cash Management Bank.

 

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Secured Hedge Agreement ” means any interest rate, currency, foreign exchange, or commodity Swap Contract permitted under Article VI or VII between any Loan Party and any of its Subsidiaries and any Hedge Bank.

Secured Obligations ” means (a) all Obligations, (b) all obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements (unless, at least five (5) Business Days prior to entering into any such agreement, the Borrower provides written notice to Agent that such agreement results in a material adverse tax impact on a Subsidiary, in which case the obligations under such agreement shall not constitute “ Secured Obligations ”), and (c) all costs and expenses incurred in connection with enforcement and collection of the foregoing to the extent required to be paid by any Loan Party under any Loan Document, including the fees, charges and disbursements of counsel, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest, expenses and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding; provided that with respect to any Loan Party that is not an “ eligible contract participant ” under the Commodity Exchange Act, Excluded Swap Obligations shall be excluded from “ Secured Obligations ” owing by, guaranteed by or secured by such Loan Party.

Secured Parties ” means, collectively, Agent, the Lenders, the L/C Issuer, the Hedge Banks, the Cash Management Banks, the Indemnitees, each co-agent or sub-agent appointed by Agent from time to time pursuant to Section  9.05 .

Secured Party Designation Notice ” shall mean a notice from any Lender or an Affiliate of a Lender in form and substance acceptable to Agent and its counsel.

Security Agreement ” means each security agreement in form and substance reasonably acceptable to Agent and its counsel, executed by a Loan Party in favor of Agent.

Significant Subsidiary ” means, at any determination date, each wholly-owned Subsidiary of Borrower that owns 15% or more of the total assets or earns 15% or more of the total income of Borrower and its Subsidiaries on a Consolidated basis, determined as of the last day of the Measurement Period for which financial statements under Section  6.1 have been delivered.

Solvent ” and “ Solvency ” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

Specified Property ” means real property acquired in conjunction with the acquisition of Nessco Group Holdings Limited and Nessco Invsat Limited.

 

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Spot Rate ” for a currency means the rate determined by Agent or the L/C Issuer, as applicable, to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two (2) Business Days prior to the date as of which the foreign exchange computation is made; provided that Agent or the L/C Issuer may obtain such spot rate from another financial institution designated by the Administrative Agent or the L/C Issuer if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency; and provided further that the L/C Issuer may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case of any Letter of Credit denominated in an Alternative Currency.

Sterling ” and “ £ ” mean the lawful currency of the United Kingdom.

Subordinated Debt ” means Indebtedness incurred by any Loan Party which by its terms (a) is subordinated in right of payment to the prior payment of the Obligations and (b) contains other terms, including without limitation, standstill, interest rate, maturity and amortization, and insolvency-related provisions, in all respects acceptable to Agent in its sole discretion.

Subsidiary ” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of Voting Stock is at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “ Subsidiary ” or to “ Subsidiaries ” shall refer to a Subsidiary or Subsidiaries of Borrower.

Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “ Master Agreement ”), including any such obligations or liabilities under any Master Agreement.

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

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

 

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SWIFT ” has the meaning specified in Section  2.03(f) .

Swingline Borrowing ” means a borrowing of a Swingline Loan pursuant to Section  2.04 .

Swingline Lender ” means Bank of America in its capacity as provider of Swingline Loans, or any successor swingline lender hereunder.

Swingline Loan ” has the meaning specified in Section  2.04(a) .

Swingline Loan Notice ” means a notice of a Swingline Borrowing pursuant to Section  2.04(b) , which, if in writing, shall be substantially in the form of Exhibit  E or such other form as approved by Agent (including any form on an electronic platform or electronic transmission system as shall be approved by Agent), appropriately completed and signed by a Responsible Officer of Borrower.

Swingline Sublimit ” means an amount equal to the lesser of (a) $5,000,000, and (b) the Revolving Facility. The Swingline Sublimit is part of, and not in addition to, the Revolving Facility.

Synthetic Debt ” means, with respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds but are not otherwise included in the definition of “Indebtedness” or as a liability on the Consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP or IFRS, as applicable.

Synthetic Lease Obligation ” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including Sale and Leaseback Transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

Target EBITDA ” means EBITDA of any Person or that is attributable to any business or asset that is the target in any Acquisition (other than between or among Borrower and one or more of its Subsidiaries), as the case may be, calculated for such Person and its Subsidiaries or business or asset, as the case may be (in each case, solely to the extent acquired pursuant to such Acquisition) on a pro forma basis consistent with the calculation of Consolidated EBITDA for Borrower and its Subsidiaries (excluding any portion thereof determined by Agent to be inapplicable).

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

Term Borrowing ” means a borrowing consisting of simultaneous Term Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Term Lenders pursuant to Section  2.01 .

Term Commitment ” means, as to each Term Lender, its obligation to make Term Loans to Borrower pursuant to Section  2.01 in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Term Lender’s name on Schedule 1.01(b) under the caption “ Term Commitment ” or opposite such caption in the Assignment and Assumption pursuant to which such Term Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. The Term Commitment of all of the Term Lenders on the Closing Date shall be $15,000,000.

 

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Term Facility ” means, at any time, (a) on or prior to the Closing Date, the aggregate amount of the Term Commitments at such time, and (b) thereafter, the aggregate principal amount of the Term Loans of all Term Lenders outstanding at such time.

Term Lender ” means (a) at any time on or prior to the Closing Date, any Lender that has a Term Commitment at such time, and (b) at any time after the Closing Date, any Lender that holds Term Loans at such time.

Term Loan ” means an advance made by any Term Lender under the Term Facility.

Term Note ” means a promissory note made by Borrower in favor of a Term Lender evidencing Term Loans made by such Term Lender, substantially in the form of Exhibit B .

Third Amendment to First Amended and Restated Credit Agreement ” means that certain Third Amendment to First Amended and Restated Credit Agreement and Waiver dated as of May 6, 2013, among Borrower, Lenders and Agent.

Threshold Amount ” means $5,000,000.

Total Credit Exposure ” means, as to any Lender at any time, the unused Commitments and Revolving Exposure and Outstanding Amount of all Term Loans of such Lender at such time.

Total Revolving Outstandings ” means the aggregate Outstanding Amount of all Revolving Loans, Swingline Loans and L/C Obligations.

Type ” means, with respect to a Loan, its character as a Base Rate Loan, a LIBOR Daily Floating Rate Loan or a Eurodollar Rate Loan.

UCC ” means the Uniform Commercial Code as in effect in the State of Texas; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Texas, “ UCC ” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

UCP ” means, with respect to any documentary Letter of Credit, the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce (“ ICC ”) Publication No. 600 (or such later version thereof as may be in effect at the time of issuance).

United States ” and “ U.S .” mean the United States of America.

Unreimbursed Amount ” has the meaning specified in Section  2.03(c)(i) .

U.S. Loan Party ” means any Loan Party that is organized under the laws of the United States of America, any state thereof or the District of Columbia.

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

 

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U.S. Tax Compliance Certificate ” has the meaning specified in Section  3.01(e)(ii)(B)( 3 ) .

Voting Stock ” means, with respect to any Person, Equity Interests issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right to so vote has been suspended by the happening of such contingency.

Withholding Agent ” means Agent or any Loan Party.

Write -Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

2015 Special Adjustments ” means those certain one-time adjustments in an aggregate amount not to exceed $16,000,000 taken in the Borrower’s fiscal quarter ended December 31, 2015.

1.02 Other Interpretive Provisions . With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including the Loan Documents and any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, modified, extended, restated, replaced or supplemented from time to time (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “hereto,” “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified, extended, restated, replaced or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

(b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

 

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1.03 Accounting Terms .

(a) Generally . All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared at Borrower’s option in conformity with, GAAP or IFRS, as applicable, in each case applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein or as required by Law. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 on financial liabilities shall be disregarded.

(b) Changes in GAAP or IFRS . If at any time any change in GAAP or IFRS, or the application thereof, would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either Borrower or the Required Lenders shall so request, Agent and Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP or IFRS or the application thereof, as applicable (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP or IFRS, as applicable, prior to such change therein and (ii) Borrower shall provide to Agent and Lenders a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP or IFRS, as applicable. Without limiting the foregoing, leases shall continue to be classified and accounted for on a basis consistent with that reflected in the Audited Financial Statements for all purposes of this Agreement, notwithstanding any change in GAAP relating thereto, unless the parties hereto shall enter into a mutually acceptable amendment addressing such changes, as provided for above.

(c) Consolidation of Variable Interest Entities . All references herein to Consolidated financial statements of Borrower and its Subsidiaries or to the determination of any amount for Borrower and its Subsidiaries on a Consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that Borrower is required to consolidate pursuant to FASB ASC 810 as if such variable interest entity were a Subsidiary as defined herein.

1.04 Rounding . Any financial ratios required to be maintained by Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

1.05 Times of Day . Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

1.06 Rates . Agent does not warrant, nor accept responsibility, nor shall Agent have any liability with respect to the administration, submission or any other matter related to the rates in the definition of “ Eurodollar Rate ” or with respect to any comparable or successor rate thereto.

1.07 Letter of Credit Amounts . Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the Dollar Equivalent of the stated amount of such Letter of Credit in effect at such time; provided that, with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the Dollar Equivalent of the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

 

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1.08 UCC Terms . Terms defined in the UCC in effect on the Closing Date and not otherwise defined herein shall, unless the context otherwise indicates, have the meanings provided by those definitions. Subject to the foregoing, the term “ UCC ” refers, as of any date of determination, to the UCC then in effect.

1.09 Timing of Payment or Performance . When the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due or performance required on a day that is not a Business Day, then, except as otherwise provided in the definition of Interest Period and in the proviso below, the date of such payment or performance shall extend to the immediately succeeding Business Day, provided that, if any principal repayment installment to be made by Borrower (other than principal repayment installments on Eurodollar Rate Loans) shall come due on a day other than a Business Day, such principal repayment installment shall be due on the next succeeding Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

1.10 Exchange Rates; Currency Equivalents .

(a) The Administrative Agent or the L/C Issuer, as applicable, shall determine the Spot Rates as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of L/C Credit Extensions and Outstanding Amounts with respect to any L/C Obligations denominated in Alternative Currencies. Such Spot Rates shall become effective as of such Revaluation Date and shall be the Spot Rates employed in converting any amounts between the applicable currencies until the next Revaluation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any currency (other than Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent or the L/C Issuer, as applicable.

(b) Wherever in this Agreement in connection with the issuance, amendment or extension of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Letter of Credit is denominated in an Alternative Currency, such amount shall be the relevant Alternative Currency Equivalent of such Dollar amount (rounded to the nearest unit of such Alternative Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or L/C Issuer, as the case may be.

(c) The Administrative Agent does not warrant, nor accept responsibility, nor shall the Administrative Agent have any liability with respect to the administration, submission or any other matter related to the rates in the definition of “Eurodollar Rate” or with respect to any comparable or successor rate thereto.

1.11 Additional Alternative Currencies .

(a) The Borrower may from time to time request that Revolving Loans and/or Letters of Credit be issued in a currency other than those specifically listed in the definition of “Alternative Currency”; provided that (i) such requested currency is an Eligible Currency and (ii) such requested currency shall only be treated as a “LIBOR Quoted Currency” to the extent that there is published LIBOR rate for such currency. In the case of any such request with respect to the issuance of Letters of Credit, such request shall be subject to the approval of the Administrative Agent and the L/C Issuer.

 

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(b) Any such request shall be made to the Administrative Agent not later than 11:00 a.m., ten (10) Business Days prior to the date of the desired Credit Extension (or such other time or date as may be agreed by the Administrative Agent and, in the case of any such request pertaining to Letters of Credit, L/C Issuer, in its or their sole discretion). In the case of any such request pertaining to Revolving Loans, the Administrative Agent shall promptly notify each Lender thereof; and in the case of any such request pertaining to Letters of Credit, the Administrative Agent shall promptly notify the L/C Issuer thereof each Lender (in the case of any such request pertaining to Revolving Loans) or the L/C Issuer (in case of such request pertaining to Letters of Credit) shall notify the Administrative Agent, not later than 11:00 a.m., five (5) Business Days after receipt of such request whether it consents, in its sole discretion, to the making of such Revolving Loans or the issuance of Letters of Credit, as the case may be, in such requested currency.

(c) Any failure by a Lender or the L/C Issuer, as the case may be, to respond to such request within the time period specified in Section  1.11(b) shall be deemed to be a refusal by such Lender or the L/C Issuer, as the case may be, to permit Revolving Loans to be made or Letters of Credit to be issued in such requested currency. If the Administrative Agent and all the Lenders consent to making Revolving Loans in such requested currency, the Administrative Agent shall so notify the Borrower and such currency shall thereupon be deemed for all purposes to be an Alternative Currency hereunder for purposes of any Borrowing of Revolving Loans; and if the Administrative Agent and the L/C Issuer consent to the issuance of Letters of Credit in such requested currency, the Administrative Agent shall so notify the Borrower and (A) the Administrative Agent and the L/C Issuer may amend this Agreement to the extent necessary to add the applicable eurocurrency rate for such currency and (B) to the extent this Agreement reflects the appropriate interest rate for such currency or has been amended to reflect the appropriate rate for such currency, such currency shall thereupon be deemed for all purposes to be an Alternative Currency, for purposes of any Letter of Credit issuances. If the Administrative Agent shall fail to obtain consent to any request for an additional currency under this Section  1.11 , the Administrative Agent shall promptly so notify the Borrower. Any specified currency of an Existing Letter of Credit that is neither Dollars nor one of the Alternative Currencies specifically listed in the definition of “Alternative Currency” shall be deemed an Alternative Currency with respect to such Existing Letter of Credit only.

1.12 Change of Currency .

(a) Each obligation of the Borrower to make a payment denominated in the national currency unit of any member state of the European Union that adopts the Euro as its lawful currency after the date hereof shall be redenominated into Euro at the time of such adoption. If, in relation to the currency of any such member state, the basis of accrual of interest expressed in this Agreement in respect of that currency shall be inconsistent with any convention or practice in the London interbank market for the basis of accrual of interest in respect of the Euro, such expressed basis shall be replaced by such convention or practice with effect from the date on which such member state adopts the Euro as its lawful currency; provided that if any Borrowing in the currency of such member state is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Borrowing, at the end of the then current Interest Period.

(b) Each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect the adoption of the Euro by any member state of the European Union and any relevant market conventions or practices relating to the Euro.

 

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(c) Each provision of this Agreement also shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect a change in currency of any other country and any relevant market conventions or practices relating to the change in currency and will put the Lenders and the Borrower in the same position, as close as possible, that they would have been in if no such change had occurred.

ARTICLE II

COMMITMENTS AND CREDIT EXTENSIONS

2.01 Loans .

(a) Term Borrowing . Subject to the terms and conditions set forth herein (including without limitation, as set out in Section  2.01(c) below), each Term Lender severally agrees that it will be deemed to have made a loan to Borrower, in Dollars, in a single advance on the Closing Date in an amount not to exceed such Term Lender’s Applicable Percentage of the Term Facility. Any portion of the Term Borrowing that is repaid or prepaid may not be reborrowed. Subject to this subsection (a) , Term Loans may be Eurodollar Rate Loans or LIBOR Daily Floating Rate Loans, as further provided herein.

(b) Revolving Borrowings . Subject to the terms and conditions set forth herein (including without limitation, as set out in Section  2.01(c) below), each Revolving Lender severally agrees to make loans (each such loan, a “ Revolving Loan ”) to Borrower, in Dollars, from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender’s Revolving Commitment; provided however, that after giving effect to any Revolving Borrowing, (i) the Total Revolving Outstandings shall not exceed the Revolving Facility, and (ii) the Revolving Exposure of any Lender shall not exceed such Revolving Lender’s Revolving Commitment. Within the limits of each Revolving Lender’s Revolving Commitment, and subject to the other terms and conditions hereof, Borrower may borrow Revolving Loans, prepay under Section  2.05 , and reborrow under this subsection (b) . Revolving Loans may be LIBOR Daily Floating Rate Loans or Eurodollar Rate Loans, as further provided herein; provided however, any Revolving Borrowings made on the Closing Date or any of the three (3) Business Days following the Closing Date shall be made as LIBOR Daily Floating Rate Loans unless Borrower delivers a Funding Indemnity Letter not less than three (3) Business Days prior to the date of such Revolving Borrowing.

(c) Existing Loans under the Existing Credit Agreement . The parties hereto acknowledge and agree that, effective as of the Closing Date, in order to accommodate and orderly effect the reallocations, adjustments, assignments, acquisitions and decreases under this Section  2.01(c) , (i) all outstanding Eurodollar Rate Loans (as defined in the Existing Credit Agreement) on the date hereof are (and shall be deemed to be) converted to Base Rate Loans under, and as defined in, the Existing Credit Agreement (and the Borrower agrees to pay to each Exiting Lender and each Existing Lender such costs and expenses would have been due under Section  3.04 of the Existing Credit Agreement as a result of such conversion unless waived by such Exiting Lender or Existing Lender), and (ii) after giving effect to clause (i) above, all outstanding Loans (as defined in the Existing Credit Agreement) under the Existing Credit Agreement on the date hereof are (and shall be deemed to be) continued as the initial Base Rate Loans (as defined in this Agreement) made under this Agreement on the Closing Date. The Existing Lenders have agreed among themselves, in consultation with the Borrower, to adjust their respective Commitments and to pay-off in full such Existing Lenders which will not become a Lender hereunder (each, an “ Exiting Lender ”). The Administrative Agent, the Lenders, the Borrower and each Exiting

 

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Lender (by receipt of the payment in full of the Loans as defined in, and owing to it under, the Existing Credit Agreement) consent to such reallocation and each Existing Lender’s adjustment of, and each Existing Lender’s assignment of, an interest in the existing Commitments (as defined in the Existing Credit Agreement) and the Existing Lenders’ partial assignments of their respective existing Commitments (pursuant to this Section  2.01 ). On the Closing Date and after giving effect to such reallocations, adjustments, assignments, acquisitions and decreases, the Commitment of each Lender shall be as set forth on Schedule 1.01(b ). With respect to such reallocations, adjustments, assignments, acquisitions and decreases, each Existing Lender shall be deemed to have acquired the Commitment allocated to it from each of the other Lenders and each Exiting Lender pursuant to the terms of the Assignment and Assumption Agreement attached as an exhibit to the Existing Credit Agreement as if each such Exiting Lender and Existing Lender had executed such Assignment and Assumption Agreement with respect to such allocation, adjustment, assignment, acquisition and decrease. The Administrative Agent shall determine the appropriate adjustments and payments between and among the Lenders and shall direct the Lenders to make such adjustments and payments to the Administrative Agent, who in turn shall make such disbursements to the Lenders from such adjustments and payments, in each case to the extent necessary to account for the revised pro rata shares resulting from the initial allocation of the Lenders’ Commitments under this Agreement.

2.02 Borrowings, Conversions and Continuations of Loans .

(a) Notice of Borrowing . Each Borrowing, each conversion of Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon Borrower’s irrevocable notice to Agent, which may be given by (i) telephone or (ii) a Loan Notice; provided that , any telephonic notice must be confirmed immediately by delivery to Agent of a Loan Notice. Each such notice must be received by Agent not later than 12:00 p.m. (i) three (3) Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans, and (ii) on the requested date of any Borrowing of LIBOR Daily Floating Rate Loans or of any conversion of Eurodollar Rate Loans to LIBOR Daily Floating Rate Loans. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $2,000,000 or a whole multiple of $500,000 in excess thereof. Except as provided in Sections 2.03(c) and 2.04(c) , each Borrowing of or conversion to LIBOR Daily Floating Rate Loans shall be in a principal amount of $250,000 or a whole multiple of $50,000 in excess thereof. Each Loan Notice and each telephonic notice shall specify (A) the applicable Facility and whether Borrower is requesting a Borrowing, a conversion of Loans from one Type to the other, or a continuation of Loans, as the case may be, under such Facility (B) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (C) the principal amount of Loans to be borrowed, converted or continued, (D) the Type of Loans to be borrowed or to which existing Loans are to be converted, and (E) if applicable, the duration of the Interest Period with respect thereto. If Borrower fails to specify a Type of Loan in a Loan Notice or if Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made as, or converted to, LIBOR Daily Floating Rate Loans. Any such automatic conversion to LIBOR Daily Floating Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one (1) month. Notwithstanding anything to the contrary herein, a Swingline Loan may not be converted to a Eurodollar Rate Loan.

(b) Advances . Following receipt of a Loan Notice for a Facility, Agent shall promptly notify each Appropriate Lender of the amount of its Applicable Percentage under such Facility of the applicable Loans, and if no timely notice of a conversion or continuation is provided by Borrower, Agent shall notify each Appropriate Lender of the details of any automatic conversion to LIBOR Daily Floating Rate Loans

 

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described in subsection (a) . In the case of a Borrowing, each Appropriate Lender shall make the amount of its Loan available to Agent in immediately available funds at Agent’s Office not later than 2:00 p.m. on the Business Day specified in the applicable Loan Notice. Upon satisfaction of the applicable conditions set forth in Section  4.02 (and, if such Borrowing is the initial Credit Extension, Section  4.01 ), Agent shall make all funds so received available to Borrower in like funds as received by Agent either by (i) crediting the account of Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) Agent by Borrower; provided however, that if, on the date a Loan Notice with respect to a Revolving Borrowing is given by Borrower, there are L/C Borrowings outstanding, then the proceeds of such Revolving Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to Borrower as provided above.

(c) Eurodollar Rate Loans . Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders, and the Required Lenders may demand that any or all of the outstanding Eurodollar Rate Loans be converted immediately to LIBOR Daily Floating Rate Loans.

(d) Interest Rates . Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error.

(e) Interest Periods . After giving effect to all Term Borrowings, all conversions of Term Loans from one Type to the other, and all continuations of Term Loans as the same Type, there shall not be more than six (6) Interest Periods in effect in respect of the Term Facility. After giving effect to all Revolving Borrowings, all conversions of Revolving Loans from one Type to the other, and all continuations of Revolving Loans as the same Type, there shall not be more than four (4) Interest Periods in effect in respect of the Revolving Facility.

(f) Cashless Settlement Mechanism . Notwithstanding anything to the contrary in this Agreement, any Lender may exchange, continue or rollover all or the portion of its Loans in connection with any refinancing, extension, loan modification or similar transaction permitted by the terms of this Agreement, pursuant to a cashless settlement mechanism approved by the Borrower, the Administrative Agent and such Lender.

2.03 Letters of Credit .

(a) The Letter of Credit Commitment .

(i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the Revolving Lenders set forth in this Section, (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit in Dollars for the account of Borrower or any of its Subsidiaries, and to amend or extend Letters of Credit previously issued by it, in accordance with subsection (b) , and (2) to honor drawings under the Letters of Credit; and (B) the Revolving Lenders severally agree to participate in Letters of Credit issued for the account of Borrower or its Subsidiaries and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Revolving Outstandings shall not exceed the Revolving Facility, (y) the Revolving Exposure of any Revolving Lender shall not exceed such Lender’s Revolving Commitment, and (z) the Outstanding Amount of the L/C

 

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Obligations shall not exceed the Letter of Credit Sublimit. Each request by Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. All Existing Letters of Credit shall be deemed to have been issued pursuant hereto and deemed L/C Obligations, and from and after the Closing Date shall be subject to and governed by the terms and conditions hereof.

(ii) The L/C Issuer shall not issue any Letter of Credit if:

(A) subject to subsection (b)(iv) , the expiry date of the requested Letter of Credit would occur more than twelve (12) months after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or

(B) the expiry date of the requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Revolving Lenders have approved such expiry date; provided , that if such expiry date would occur after the Letter of Credit Collateralization Date, Borrower shall be required to provide Cash Collateral pursuant to Section  2.14 .

(iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit if:

(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing the Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon the L/C Issuer with respect to the Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;

(B) the issuance of the Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally;

(C) except as otherwise agreed by Agent and the L/C Issuer (not to be unreasonably withheld), the Letter of Credit is in an initial stated amount less than $25,000, in the case of a commercial Letter of Credit, or $25,000, in the case of a standby Letter of Credit;

(D) except as otherwise agreed by the Administrative Agent and the L/C Issuer, the Letter of Credit is to be denominated in a currency other than Dollars or an Alternative Currency;

(E) any Revolving Lender is at that time a Defaulting Lender, unless the L/C Issuer has entered into arrangements, including the delivery of Cash Collateral, satisfactory to the L/C Issuer (in its sole discretion) with Borrower or such Revolving

 

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Lender to eliminate the L/C Issuer’s actual or potential Fronting Exposure (after giving effect to Section  2.15(a)(iv) ) with respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or that Letter of Credit and all other L/C Obligations as to which the L/C Issuer has actual or potential Fronting Exposure, as it may elect in its sole discretion; or

(F) the L/C Issuer does not as of the issuance date of the requested Letter of Credit issue Letters of Credit in the requested currency.

(iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue the Letter of Credit in its amended form under the terms hereof.

(v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to the Letter of Credit.

(vi) The L/C Issuer shall act on behalf of the Revolving Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “ Administrative Agent ” as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.

(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit .

(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of Borrower delivered to the L/C Issuer (with a copy to Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of Borrower. Such Letter of Credit Application may be sent by fax transmission, by United States mail, by overnight courier, by electronic transmission using the system provided by the L/C Issuer, by personal delivery or by any other means acceptable to the L/C Issuer. Such Letter of Credit Application must be received by the L/C Issuer and Agent not later than 10:00 a.m. at least five (5) Business Days (or such later date and time as Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount and currency thereof and in the absence of specification of currency shall be deemed a request for a Letter of Credit denominated in Dollars; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; (G) the purpose and nature of the requested Letter of Credit; and (H) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (1) the Letter of Credit to be amended; (2) the proposed date of amendment thereof (which shall be a Business Day); (3) the nature of the proposed amendment; and (4) such other matters as the L/C Issuer may require. Additionally, Borrower shall furnish to the L/C Issuer and Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or Agent may require.

 

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(ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with Agent (by telephone or in writing) that Agent has received a copy of such Letter of Credit Application from Borrower and, if not, the L/C Issuer will provide Agent with a copy thereof. Unless the L/C Issuer has received written notice from any Revolving Lender, Agent or any Loan Party, at least one (1) Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of Borrower (or the applicable Subsidiary) or enter into the applicable amendment, as the case may be, in each c