CREDIT AGREEMENT — SECOND DRAFT REDLINE
$300,000,000 Senior Secured Asset-Based Revolving Credit Facility
Calderwood & Harkness LLP Borrower Comments — Second Round — April 7, 2023
Redline against Revised WGH Draft dated April 3, 2023
among
CASCADE RETAIL HOLDINGS INC. a Delaware corporation, as a Borrower,
CASCADE RETAIL OPERATING COMPANY LLC a Delaware limited liability company, as a Borrower,
THE GUARANTORS PARTY HERETO
THE LENDERS PARTY HERETO
and
CRESCENT HARBOR BANK, N.A. as Administrative Agent, Collateral Agent, Sole Lead Arranger, and Sole Bookrunner
C&H Matter No.: 1038-00002
Counsel to the Borrowers: Calderwood & Harkness LLP, 599 Lexington Avenue, 42nd Floor, New York, NY 10022 (Claudia Merritt, Marcus Leung)
DRAFT — PRIVILEGED AND CONFIDENTIAL — FOR DISCUSSION PURPOSES ONLY
ATTORNEY WORK PRODUCT
TRANSMITTAL NOTE / REDLINE INSTRUCTIONS
April 7, 2023
From: Marcus Leung, Calderwood & Harkness LLP
To: Bernard Ashford and Megan Proctor, Whitman Greystone & Hathaway LLP; Thomas Reiland and Julianne Strickland, Crescent Harbor Bank, N.A.
cc: Claudia Merritt and Sophie Tremblay, Calderwood & Harkness LLP; Derek Tanaka, Elena Kowalski, and Priya Anand, Cascade Retail Holdings Inc.
Re: Credit Agreement — $300,000,000 Senior Secured Asset-Based Revolving Credit Facility — Second-Round Borrower Comments
Bernard and Megan,
Enclosed please find Calderwood & Harkness's second-round comments to the Credit Agreement, marked against the revised WGH draft circulated by Bernard Ashford and Megan Proctor on April 3, 2023 (the "WGH Revised Draft"). As you are aware, the WGH Revised Draft incorporated certain, but not all, of the first-round comments that we delivered on behalf of the Borrowers on March 28, 2023.
Redline Conventions. Deletions from the WGH Revised Draft are shown as and insertions by C&H are shown as . Marginal comments explaining the rationale for key changes are included in bracketed annotations labeled "[C&H Comment]" and are attributable to Marcus Leung and Sophie Tremblay unless otherwise noted. These marginal annotations are for counsel discussion purposes only and should not appear in any subsequent draft.
Focus of Second-Round Comments. This second round focuses on the remaining open points identified in the discussions between the parties, including:
1. Availability Reserves methodology and caps — Borrower proposes a $30,000,000 aggregate cap and enhanced notice requirements for reserve adjustments.
2. FCCR Trigger Threshold formulation — Borrower proposes reducing the threshold from 12.5% / $30M floor to 10% / $25M floor to create an appropriate buffer between the FCCR trigger and the cash dominion trigger.
3. Permitted Investments basket — Borrower proposes a general investment basket of $20,000,000, increased from WGH's $15,000,000 proposal.
4. Disposition basket — Borrower proposes a general disposition basket of $10,000,000 per fiscal year, increased from WGH's $7,500,000 proposal.
5. Purchase money / capital lease carve-out — Borrower proposes $15,000,000, increased from WGH's $10,000,000.
6. SOFR credit spread adjustments — Borrower confirms acceptance of 10 basis points for the one-month Interest Period and 15 basis points for the three-month Interest Period.
7. Cash dominion mechanics — Borrower proposes refinement of the cure period from 30 consecutive calendar days to 20 consecutive Business Days.
8. Borrowing Base Certificate delivery timing — Borrower proposes the 20th of the following month (rather than the 15th) to accommodate its accounting close cycle.
9. Various conforming and clean-up changes — Including filling in open placeholders for cross-default thresholds, ERISA and judgment thresholds, employee equity repurchase baskets, affiliate transaction de minimis amounts, and related provisions.
We have also included, as an appendix to this cover note, a summary table of the key open points and a brief statement of the Borrower's rationale for each proposed change. We suggest scheduling a call for early next week to discuss any remaining points of disagreement before we turn to the ancillary documents.
We look forward to receiving your comments.
Best regards,
Marcus Leung Calderwood & Harkness LLP 599 Lexington Avenue, 42nd Floor New York, NY 10022 Direct: (212) 558-4927
Email: mleung@calderwoodharkness.com
ARTICLE I — DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"ABL Priority Collateral" has the meaning specified in the Intercreditor Agreement.
"Adjusted Term SOFR" means, for purposes of any calculation, the Term SOFR for the applicable Interest Period on the applicable day ; provided that if Adjusted Term SOFR as so determined shall ever be less than the Floor, then Adjusted Term SOFR shall be deemed to be the Floor.
[C&H Comment — M. Leung: Agreed — 10 bps / 15 bps SOFR CSA consistent with market for ABL transactions in current rate environment. No further comment on the Adjusted Term SOFR definition.]
"Administrative Agent" means Crescent Harbor Bank, N.A., in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent appointed in accordance with Article IX.
"Affiliate" means, with respect to any 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 aggregate of the Commitments of all Lenders, which as of the Closing Date shall be $300,000,000.
"Applicable Rate" means, for any day, :
[C&H Comment — M. Leung: Base Rate margin should be 100 bps inside SOFR margin per standard ABL convention. We have filled in the Base Rate Loan margin placeholder at 200 basis points, reflecting the customary 100 basis point differential between SOFR and Base Rate margins in current ABL transactions of this size and type.]
"Availability" means, at any time, an amount equal to (a) the lesser of (i) the Aggregate Commitments at such time and (ii) the Borrowing Base at such time, minus (b) the sum of (i) the aggregate principal amount of all outstanding Revolving Loans at such time, (ii) the aggregate amount of all LC Obligations at such time, and (iii) the aggregate principal amount of all outstanding Swingline Loans at such time.
"Availability Reserves" means,
[C&H Comment — M. Leung / S. Tremblay: This is a key open point. Borrower needs predictability on reserves. The proposed cap of $30,000,000 provides the Administrative Agent with meaningful headroom above the current $23,650,000 closing reserves (approximately $6.35M or 27% of headroom) while protecting the Borrower from unreasonable reserve increases that could inadvertently trigger the springing FCCR covenant or cash dominion. The 10 Business Day notice period (up from WGH's 5 Business Days) gives the Borrower a reasonable opportunity to discuss and, if appropriate, contest the proposed reserve increase. The requirement for supporting documentation is consistent with best practices in ABL transactions and reflects that reserve determinations can have a material impact on Availability and covenant compliance. We note that the cap does not apply during a Default or Event of Default, which addresses the Agent's concern about being constrained during periods of distress.]
"Base Rate" means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50%, and (c) Adjusted Term SOFR for a one-month Interest Period as published two U.S. Government Securities Business Days prior to such day plus 1.00%; provided that if the Base Rate as so determined shall ever be less than the Floor, then the Base Rate shall be deemed to be the Floor. Any change in the Base Rate due to a change in the Prime Rate, the Federal Funds Rate, or Adjusted Term SOFR shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Rate, or Adjusted Term SOFR, respectively.
"Borrower" and "Borrowers" have the meanings specified in the preamble to this Agreement, being Cascade Retail Holdings Inc. and Cascade Retail Operating Company LLC.
"Borrower Representative" means Cascade Retail Holdings Inc.
"Borrowing Base" means, at any time, an amount equal to:
(a) the sum of (i) 85% of the aggregate amount of Eligible Receivables at such time, plus (ii) 65% of the NOLV of Eligible Inventory at such time,
minus
(b) the aggregate amount of all Availability Reserves at such time.
[C&H Comment — M. Leung: No substantive change to the Borrowing Base formula. C&H confirms advance rates: 85% for Eligible Receivables and 65% for Eligible Inventory NOLV. Based on the Closing Borrowing Base Certificate, the Gross Borrowing Base is $350,050,000, less reserves of $23,650,000, yielding a Net Borrowing Base of $326,400,000.]
"Business Day" means any day other than a Saturday, Sunday, or other day on which commercial banks in New York, New York are authorized or required by law to close.
"Cash Dominion Event" means the occurrence of either of the following: (a) Availability at any time falls below or (b) an Event of Default has occurred and is continuing. A Cash Dominion Event shall be deemed to have ceased if (x) in the case of clause (a) above, Availability shall have exceeded $37,500,000 for and (y) no Event of Default then exists or is continuing.
[C&H Comment — S. Tremblay: 30 calendar days is too long a cure period for a seasonal retail business. Cascade's business experiences significant working capital fluctuations driven by seasonal inventory build (typically Q3 for the fall/holiday selling season) and post-holiday receivables collection (Q1). A 30-calendar-day cure period, which includes weekends and holidays, effectively extends the practical cure timeline to approximately six weeks when accounting for the time needed to identify the trigger and marshal resources. 20 Business Days (approximately 28 calendar days, and 26–27 calendar days during typical weeks) provides materially equivalent protection to the Lender group while being more appropriate for a business with this cash conversion cycle. We note that the trigger level itself ($37,500,000, or 12.5% of Commitments) remains unchanged.]
"Cash Management Agreement" means any agreement to provide cash management services, including treasury, depository, overdraft, credit card processing, debit card, purchase card, electronic funds transfer, and other cash management arrangements.
"Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but excluding any employee benefit plan of any Borrower or any Subsidiary, and any person or entity acting in its capacity as trustee, agent, or other fiduciary or administrator of any such plan) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of more than of the Equity Interests of Cascade Retail Holdings Inc. entitled to vote for members of the board of directors (or equivalent governing body) of Cascade Retail Holdings Inc. on a fully diluted basis; (b) Cascade Retail Holdings Inc. ceases to own, directly or indirectly, 100% of the Equity Interests of Cascade Retail Operating Company LLC; or (c) a majority of the seats (other than vacant seats) on the board of directors (or equivalent governing body) of Cascade Retail Holdings Inc. ceases to be occupied by Continuing Directors.
"Closing Date" means the date on which the conditions precedent set forth in Section 4.01 are satisfied or waived by the Administrative Agent (and, to the extent required, the Required Lenders), which is expected to occur on or about May 15, 2023.
"Collateral" means all of the "Collateral" as defined in any Security Document, and shall include all other property and assets that are or are required under the terms of the Loan Documents to be subject to Liens in favor of the Collateral Agent for the benefit of the Secured Parties.
"Collateral Agent" means Crescent Harbor Bank, N.A., in its capacity as collateral agent under any of the Loan Documents, or any successor collateral agent appointed in accordance with Article IX.
"Consolidated EBITDA" means, for any period, an amount equal to Consolidated Net Income for such period, plus the following to the extent deducted (and not added back) in calculating such Consolidated Net Income: (i) Consolidated Interest Charges for such period, (ii) provisions for federal, state, local, and foreign income taxes of the Borrowers and their Subsidiaries for such period, (iii) depreciation and amortization expenses of the Borrowers and their Subsidiaries for such period, (iv) non-cash charges or losses (including non-cash stock-based compensation expenses) for such period (excluding any non-cash charge or loss to the extent it represents an accrual of or reserve for cash charges or losses in any future period or amortization of a prepaid cash charge that was paid in a prior period), minus (a) any non-cash items of income included in calculating such Consolidated Net Income (other than the accrual of revenue in the ordinary course of business).
[C&H Comment — M. Leung: Standard EBITDA add-backs for restructuring and transaction costs. The restructuring add-back reflects Cascade's ongoing store rationalization program, which is expected to involve selective closure and remodeling of underperforming outlet locations over the coming fiscal year. The $15,000,000 cap is conservative relative to the Borrower's consolidated revenue base ($1,820,000,000) and is capped to protect Lender interests. The transaction costs add-back is limited to expenses incurred in connection with the closing of this facility and is capped at $5,000,000, which is consistent with the estimated transaction costs outlined in the Sources and Uses. We note that FY2022 Consolidated EBITDA of $148,500,000 (as reported in the audited financials prepared by Kessler & Hodge LLP) would not have been materially affected by these add-backs, as restructuring charges in FY2022 were approximately $6,200,000.]
"Continuing Directors" means the directors of Cascade Retail Holdings Inc. on the Closing Date and each other director whose election or nomination for election to the board of directors of Cascade Retail Holdings Inc. was approved by a majority of the Continuing Directors then in office.
"Default" means any event or condition that constitutes an Event of Default or that, upon notice, lapse of time, or both, would constitute an Event of Default.
"Eligible Inventory" means, at any time, Inventory of any Loan Party that the Administrative Agent, in its Permitted Discretion, deems to be eligible as the basis for the extension of credit hereunder. Without limiting the Administrative Agent's Permitted Discretion, Eligible Inventory shall not include any Inventory that:
(a) is not owned by a Loan Party free and clear of all Liens, other than Permitted Liens;
(b) is not located in the continental United States at a location owned or leased by a Loan Party (or, subject to the proviso below, at a location owned or operated by a third party);
(c) is not subject to a perfected, first priority Lien in favor of the Collateral Agent for the benefit of the Secured Parties (subject only to Permitted Liens);
(d) consists of supplies, packing materials, or shipping materials;
(e) consists of goods that are damaged, defective, or recalled, or that are not merchantable or are not usable or saleable in the ordinary course of business;
(f) consists of Inventory that is slow-moving, obsolete, or discontinued;
(g) consists of Inventory in transit for more than days from the date of shipment;
(h) consists of work-in-process;
(i) is subject to any licensing, royalty, or similar arrangement that would restrict or impair the ability of the Collateral Agent or any Lender to sell or otherwise dispose of such Inventory after the occurrence of an Event of Default;
(j) is located at a premises leased by a Loan Party unless the Administrative Agent has received a landlord waiver or collateral access agreement in form and substance reasonably satisfactory to the Administrative Agent with respect to such premises (or a reserve has been established with respect to rent at such premises); or
(k) or
(l) the Administrative Agent otherwise determines in its Permitted Discretion not to be eligible.
[C&H Comment — S. Tremblay: The 45-day in-transit period reflects actual supply chain timing for imported goods sourced from overseas vendors (primarily in Asia). Cascade's average transit time for ocean freight shipments is 32–38 days from port of origin to distribution center, and the 45-day period provides a reasonable buffer for transit delays, port congestion, and customs clearance. We note that the Agent's field examiner (Ridgeline Asset Advisors LLC) confirmed in its appraisal report that in-transit inventory constitutes a material component of the Borrowing Base. Regarding fulfillment center inventory: Kent, WA, Reno, NV, and Columbus, OH are Cascade Fulfillment Services Inc.'s three core distribution centers. Inventory at these locations represents a substantial portion of total eligible inventory and must be included in the Borrowing Base for the facility to function as intended. The requirement for landlord waivers or collateral access agreements (or establishment of reserves in lieu thereof) adequately protects the Lender group.]
"Eligible Receivables" means, at any time, Receivables of any Loan Party that the Administrative Agent, in its Permitted Discretion, deems to be eligible as the basis for the extension of credit hereunder. Without limiting the Administrative Agent's Permitted Discretion, Eligible Receivables shall not include any Receivable that:
(a) is not a bona fide, legally enforceable obligation of the applicable account debtor arising in the ordinary course of a Loan Party's business;
(b) is owed by an account debtor that is an Affiliate of any Loan Party;
(c) is owed by an account debtor that has filed a petition for bankruptcy or insolvency, or has made an assignment for the benefit of creditors, or has had a receiver or trustee appointed over all or a substantial part of its assets;
(d) has remained unpaid for more than 90 days after the date of the original invoice therefor (provided that accounts receivable due from any Governmental Authority shall remain Eligible Receivables if they have remained unpaid for not more than days after the date of the original invoice therefor);
(e) is owed by an account debtor with respect to which or more of the aggregate Receivables of such account debtor are ineligible under clause (d) above;
(f) is not subject to a perfected, first priority Lien in favor of the Collateral Agent for the benefit of the Secured Parties (subject only to Permitted Liens);
(g) is evidenced by chattel paper, a promissory note, or an instrument (unless delivered to the Collateral Agent);
(h) arises from a sale or return, a consignment, a bill-and-hold arrangement, a guaranteed sale, or any similar arrangement;
(i) is subject to any offset, deduction, counterclaim, or dispute asserted by the applicable account debtor;
(j) is owed by an account debtor that is organized or has its principal place of business outside the United States (unless backed by a letter of credit acceptable to the Administrative Agent); or
(k) the Administrative Agent otherwise determines in its Permitted Discretion not to be eligible.
[C&H Comment — M. Leung: Government receivables are typically paid on a longer cycle than commercial receivables, and Cascade has several contracts with state and local government agencies for uniform and workwear programs. A 120-day eligibility window for government receivables is standard in retail and government contract contexts. The 50% cross-aging threshold means that receivables from an account debtor are excluded only if more than half of such debtor's receivables are more than 90 days past due — this is a standard threshold and avoids penalizing the Borrower for isolated slow-paying invoices from otherwise creditworthy debtors.]
"Event of Default" has the meaning specified in Section 8.01.
"FCCR Trigger Threshold" means, at any time, an amount equal to the greater of (a) of the lesser of (x) the Aggregate Commitments at such time and (y) the Borrowing Base at such time, and (b) .
[C&H Comment — M. Leung / S. Tremblay: This is a key open point. The FCCR Trigger Threshold at 12.5% of Commitments (WGH's proposal) effectively means that the springing FCCR covenant and cash dominion would both be triggered at the same Availability level ($37,500,000), which is commercially unreasonable. The FCCR covenant is intended to be a "last resort" covenant that springs only when Availability falls to distressed levels — if it triggers at the same level as cash dominion, the covenant ceases to be truly "springing" and effectively becomes a permanent covenant once cash dominion is triggered.
Under the Borrower's proposal, the FCCR trigger at 10% of Commitments yields $30,000,000, which sits $7,500,000 below the cash dominion trigger of $37,500,000. This creates an appropriate buffer zone: if Availability falls below $37,500,000, cash dominion springs and the Administrative Agent gains control over the Borrower's cash flow, but the FCCR covenant does not spring until Availability falls an additional $7,500,000 to $30,000,000. This structure is consistent with market practice in ABL transactions, where the FCCR trigger is typically set 2.5–5.0 percentage points below the cash dominion trigger.
The $25,000,000 floor (down from WGH's $30,000,000 floor) is appropriate because: (i) the percentage-based trigger ($30,000,000 at 10% of $300M Commitments) already exceeds the floor, so the floor is currently not binding; (ii) the floor is relevant only if the Borrowing Base shrinks significantly below the Commitment level, in which case a $25,000,000 floor provides adequate protection; and (iii) a $25,000,000 floor on a $300M facility (8.3% of Commitments) is consistent with market for ABL facilities of this size.
For reference, the Borrower's FY2022 FCCR was 1.70:1.00 (Consolidated EBITDA of $148,500,000 less unfinanced capex of approximately $28,300,000 less cash taxes of approximately $18,700,000 = $101,500,000 numerator; Fixed Charges of approximately $87,200,000 denominator), which provides substantial headroom above the 1.10:1.00 minimum.]
"Fixed Charge Coverage Ratio" or "FCCR" means, for any period, the ratio of (a) Consolidated EBITDA for such period minus unfinanced capital expenditures made in cash during such period minus cash taxes paid during such period, to (b) Fixed Charges for such period. The minimum Fixed Charge Coverage Ratio shall be 1.10 to 1.00, tested on a trailing four-fiscal-quarter basis, in each case subject to Section 7.11.
"Fixed Charges" means, for any period, the sum (without duplication) of (a) Consolidated Interest Charges actually paid in cash during such period, (b) scheduled principal payments on Indebtedness actually paid in cash during such period, (c) Restricted Payments actually paid in cash during such period, and (d) capital lease obligation payments actually paid in cash during such period.
"Floor" means 0.00%.
"Governmental Authority" means any federal, state, provincial, local, or foreign court, governmental agency, authority, instrumentality, or regulatory body.
"Guarantor" means each of Cascade Digital Commerce Inc., a Delaware corporation, Cascade Outlet Stores LLC, a Delaware limited liability company, and Cascade Fulfillment Services Inc., a Delaware corporation, and each other Person that shall execute and deliver a guaranty or guaranty supplement after the Closing Date pursuant to Section 6.12.
"Interest Period" means, with respect to any SOFR Loan, the period commencing on the date such SOFR Loan is disbursed or converted to or continued as a SOFR Loan and ending on the numerically corresponding day in the calendar month that is one month or three months thereafter (in each case, subject to the availability of the applicable Adjusted Term SOFR), as selected by the applicable Borrower in its Notice of Borrowing or Notice of Conversion/Continuation; 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.
"Lender" and "Lenders" mean the financial institutions listed on Schedule 1.01(a) and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.
"Loan Documents" means this Agreement, the Security Agreement, each Mortgage (if any), each Guaranty, each Borrowing Base Certificate, each Compliance Certificate, the Fee Letter, and all other agreements, documents, instruments, and certificates at any time executed and/or delivered by any Loan Party in connection with this Agreement or the transactions contemplated hereby.
"Loan Party" means each Borrower and each Guarantor.
"Maturity Date" means the fifth anniversary of the Closing Date; provided that if such date is not a Business Day, the Maturity Date shall be the immediately preceding Business Day.
"NOLV" means, with respect to Eligible Inventory, the net orderly liquidation value of such Inventory as determined from time to time by reference to the most recent appraisal of such Inventory conducted by Ridgeline Asset Advisors LLC or another appraisal firm acceptable to the Administrative Agent in its Permitted Discretion.
"Permitted Discretion" means
[C&H Comment — S. Tremblay: Expanding the standard of Permitted Discretion to include "exercised in good faith, in a commercially reasonable manner, and consistent with the exercise of such discretion in comparable asset-based lending transactions" provides the Borrower with additional comfort that reserve and eligibility decisions will be made in accordance with prevailing market standards. This language does not materially limit the Agent's discretion — it simply codifies the expectation that discretionary decisions (particularly with respect to Availability Reserves and eligibility criteria) will be made on a reasonable and good-faith basis. We note that similar language appears in a number of recent ABL credit agreements for borrowers of comparable size.]
"Permitted Liens" has the meaning specified in Section 7.01.
"Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority, or other entity.
"Required Lenders" means, at any time, Lenders having Revolving Exposure and unused Commitments representing more than 50% of the sum of the aggregate Revolving Exposure and unused Commitments at such time.
"SOFR Adjustment" means (a) for an Interest Period of one month, and (b) for an Interest Period of three months, .
[C&H Comment — M. Leung: Agreed. The 10 bps / 15 bps SOFR credit spread adjustments are consistent with market convention for asset-based lending facilities in the current rate environment. No further comment.]
"Term SOFR" means, with respect to any Interest Period, the Term SOFR Reference Rate for a tenor comparable to such Interest Period on the day that is two U.S. Government Securities Business Days prior to the first day of such Interest Period, as such rate is published by the CME Group Benchmark Administration Limited (or a successor administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).
All other defined terms used in this Agreement and not specifically identified above as having been modified in this second-round redline shall have the meanings ascribed to them in the WGH Revised Draft dated April 3, 2023, without change. Minor conforming changes to cross-references and other defined terms have been made throughout this Agreement to reflect the substantive changes described herein, but no other defined terms have been substantively modified.
Section 1.02 — Other Interpretive Provisions
Unless the context of this Agreement otherwise requires, (a) words of any gender include each other gender, (b) words using the singular or plural number also include the plural or singular number, respectively, (c) the terms "hereof," "herein," "hereby," "hereto," and derivative or similar words refer to this entire Agreement, (d) the terms "Article," "Section," "Schedule," and "Exhibit" refer to the specified Article, Section, Schedule, or Exhibit of or to this Agreement unless otherwise specified, (e) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," (f) the word "or" is not exclusive, and (g) references to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto.
[No changes from WGH Revised Draft.]
Section 1.03 — Accounting Terms
All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.05.
[No changes from WGH Revised Draft.]
Section 1.04 — Rounding
Any financial ratios required to be maintained by any Loan Party 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.
[No changes from WGH Revised Draft.]
Section 1.05 — References to Agreements and Laws
Unless otherwise specified, (a) all references to documents, instruments, and agreements (including this Agreement) shall be deemed to include all subsequent amendments, restatements, extensions, supplements, and other modifications thereto, but only to the extent such amendments, restatements, extensions, supplements, and other modifications are not prohibited by any Loan Document, and (b) all references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing, or interpreting such Law.
[No changes from WGH Revised Draft.]
Section 1.06 — Times of Day
Unless otherwise specified, all references herein to times of day shall be references to Eastern Time (daylight or standard, as applicable).
[No changes from WGH Revised Draft.]
Section 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 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 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.
[No changes from WGH Revised Draft.]
Section 1.08 — Rates; SOFR Notification
The Administrative Agent does not warrant, nor accept responsibility for, nor shall the Administrative Agent have any liability with respect to (a) the continuation of, administration of, submission of, calculation of, or any other matter related to the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR, or any component definition thereof or rates referenced in the definition thereof, (b) the effect, implementation, or composition of any Benchmark Replacement, or (c) any alternative, successor, or replacement rate (including any Benchmark Replacement). The Borrowers acknowledge that the terms, provisions, and conditions of this Section are provided primarily for information purposes.
[No changes from WGH Revised Draft. C&H accepts the benchmark replacement provisions as drafted.]
ARTICLE II — THE COMMITMENTS AND BORROWINGS
Section 2.01 — Revolving Commitments
Subject to the terms and conditions set forth herein, each Lender severally agrees to make revolving loans (each, a "Revolving Loan") to the Borrowers 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 Commitment; provided that after giving effect to any Borrowing of Revolving Loans, (a) the Total Revolving Exposure shall not exceed the lesser of (i) the Aggregate Commitments and (ii) the Borrowing Base, and (b) the Revolving Exposure of any Lender shall not exceed such Lender's Commitment. Within the limits of each Lender's Commitment, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section, prepay under Section 2.05, and reborrow under this Section. Revolving Loans may be Base Rate Loans, SOFR Loans, or a combination thereof, as further provided herein.
The Commitments and Pro Rata Shares of the Lenders are as follows:
[No changes from WGH Revised Draft.]
Section 2.02 — Borrowings, Conversions and Continuations of Revolving Loans
(a) Each Borrowing of Revolving Loans, each conversion of Revolving Loans from one Type to the other, and each continuation of SOFR Loans shall be made upon the applicable Borrower's irrevocable notice to the Administrative Agent, which notice must be received by the Administrative Agent (i) in the case of SOFR Loans, not later than 11:00 a.m. three Business Days prior to the requested date of any Borrowing, conversion, or continuation, and (ii) in the case of Base Rate Loans, not later than 11:00 a.m. on the requested date of any Borrowing or conversion.
(b) Following receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Lender of the amount of its Pro Rata Share of such Borrowing, and if no timely notice of conversion or continuation is provided by the applicable Borrower, then SOFR Loans shall be converted to Base Rate Loans on the last day of the Interest Period applicable thereto.
[No changes from WGH Revised Draft.]
Section 2.03 — Letters of Credit
(a) LC Sublimit. Subject to the terms and conditions set forth herein, the LC Issuer agrees to issue standby Letters of Credit and commercial Letters of Credit for the account of any Borrower from time to time on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding $40,000,000 (the "LC Sublimit").
(b) LC Issuance. Each issuance, amendment, renewal, or extension of a Letter of Credit shall be subject to the conditions set forth in this Section 2.03 and Section 4.02.
(c) LC Fees. The Borrowers shall pay to the Administrative Agent, for the account of the Lenders in accordance with their respective Pro Rata Shares, a Letter of Credit fee (the "LC Fee") equal to 3.00% (300 basis points) per annum of the average daily stated amount of all outstanding Letters of Credit, payable quarterly in arrears on the last Business Day of each fiscal quarter.
(d) Fronting Fee. The Borrowers shall pay directly to the LC Issuer a fronting fee equal to 0.125% (12.5 basis points) per annum of the average daily stated amount of all outstanding Letters of Credit issued by such LC Issuer, payable quarterly in arrears on the last Business Day of each fiscal quarter.
[No substantive changes from WGH Revised Draft.]
Section 2.04 — Swingline Loans
(a) Swingline Sublimit. Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make swingline loans (each, a "Swingline Loan") to the Borrowers from time to time on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding $25,000,000 (the "Swingline Sublimit").
(b) Each Swingline Loan shall be a Base Rate Loan. Swingline Loans shall be subject to settlement on a weekly basis (or more frequently if requested by the Swingline Lender) in accordance with customary procedures.
[No substantive changes from WGH Revised Draft.]
Section 2.05 — Prepayments
(a) Optional Prepayments. The Borrowers may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Revolving Loans in whole or in part without premium or penalty; provided that such notice must be received by the Administrative Agent (i) in the case of SOFR Loans, not later than 11:00 a.m. three Business Days prior to any proposed prepayment and (ii) in the case of Base Rate Loans and Swingline Loans, not later than 11:00 a.m. on the date of the proposed prepayment.
(b) Mandatory Prepayments. If at any time the Total Revolving Exposure exceeds the lesser of (i) the Aggregate Commitments and (ii) the Borrowing Base (an "Overadvance"), the Borrowers shall immediately prepay Revolving Loans, Swingline Loans, and/or cash collateralize LC Obligations in an aggregate amount sufficient to eliminate such Overadvance.
[No changes from WGH Revised Draft.]
Section 2.06 — Termination or Reduction of Commitments
The Borrowers may, upon not less than three Business Days' prior irrevocable written notice to the Administrative Agent, terminate the unused Commitments or permanently reduce the unused portion of the Commitments; provided that (a) any such partial reduction shall be in an aggregate amount of not less than $5,000,000 and in integral multiples of $1,000,000 in excess thereof, and (b) the Aggregate Commitments shall not be reduced to an amount that is less than the Total Revolving Exposure at the time of such reduction.
[No changes from WGH Revised Draft.]
Section 2.07 — Repayment of Loans
(a) The Borrowers shall repay to the Lenders on the Maturity Date the aggregate principal amount of all Revolving Loans and Swingline Loans outstanding on such date.
(b) Each Lender shall maintain, in accordance with its usual practice, an account or accounts evidencing the indebtedness of the Borrowers to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement.
[No changes from WGH Revised Draft.]
Section 2.08 — Interest
(a) Subject to the provisions of subsection (b) below, (i) each SOFR Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Adjusted Term SOFR for such Interest Period plus the Applicable Rate (3.00% per annum), (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate (), and (iii) each Swingline Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate ().
[C&H Comment — M. Leung: Consistent with the Applicable Rate definition change, the Base Rate margin has been filled in at 200 basis points, which is 100 basis points inside the SOFR margin. This is standard ABL convention.]
(b) Default Rate. If any amount payable by any Loan Party under any Loan Document is not paid when due (without regard to any applicable grace period), whether at stated maturity, by acceleration, or otherwise, such overdue amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate (i.e., the rate otherwise applicable thereto plus 2.00% (200 basis points) per annum) to the fullest extent permitted by applicable Law. Furthermore, while any Event of Default exists, the Borrowers shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Law.
(c) SOFR Floor. Notwithstanding anything to the contrary contained herein, if at any time the rate determined pursuant to subsection (a)(i) above (prior to giving effect to the Applicable Rate) is less than 0.00% (the "Floor"), the rate shall be deemed to be the Floor.
[No other changes from WGH Revised Draft.]
Section 2.09 — Fees
(a) Unused Line Fee. The Borrowers shall pay to the Administrative Agent, for the account of the Lenders in accordance with their respective Pro Rata Shares, an unused line fee (the "Unused Line Fee") equal to 0.375% (37.5 basis points) per annum of the average daily unused portion of the Aggregate Commitments, payable quarterly in arrears on the last Business Day of each fiscal quarter, commencing with the first full fiscal quarter after the Closing Date.
(b) Letter of Credit Fees. The Borrowers shall pay LC Fees and fronting fees as set forth in Section 2.03(c) and Section 2.03(d).
(c) Administrative Agent Fee. The Borrowers shall pay to the Administrative Agent, for its own account, an annual administrative agent fee of $150,000 per annum, payable in advance on the Closing Date and on each anniversary thereof.
(d) Upfront / Arrangement Fee. The Borrowers shall pay to each Lender an upfront fee equal to 0.50% (50 basis points) of such Lender's Commitment, payable on the Closing Date, in the following amounts:
[No changes from WGH Revised Draft.]
Section 2.10 — Computation of Interest and Fees
All computations of interest for Base Rate Loans (including Base Rate Loans determined by reference to Adjusted Term SOFR) shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All computations of interest for SOFR Loans and all computations of fees shall be made on the basis of a 360-day year and actual days elapsed.
[No changes from WGH Revised Draft.]
Section 2.11 — Evidence of Indebtedness
The Administrative Agent shall maintain at its address referred to in Section 11.02 a copy of each Assignment and Assumption delivered to it pursuant to Section 11.07(d) and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of (and stated interest on) the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive absent manifest error, and the Borrowers, the Administrative Agent, and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement.
[No changes from WGH Revised Draft.]
Section 2.12 — Payments Generally; Administrative Agent's Clawback
(a) All payments to be made by any Loan Party shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment, or setoff.
(b) All payments by any Loan Party hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent's office, in Dollars and in immediately available funds, not later than 2:00 p.m. on the date specified herein.
[No changes from WGH Revised Draft.]
Section 2.13 — Sharing of Payments